The Revenue-Maximizing Corporate Income Tax Rate for Turkey

Hüseyin Şen () and Zeynep Burcu Bulut-Çevik ()
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Hüseyin Şen: Ankara Yıldırım Beyazıt University, Faculty of Political Sciences, Department of Public Finance. Esenboğa Külliyesi, Çubuk/Ankara, Turkey.
Zeynep Burcu Bulut-Çevik: Corresponding Author. Economist, PhD, Toronto, Canada.

Journal for Economic Forecasting, 2021, issue 1, 122-142

Abstract: This paper empirically explores the revenue-maximizing corporate income tax rate for Turkey by using annual time-series data for the period from 1980 to 2019. Overall, we identify two key findings. First, corporate income tax rates are nonlinearly associated with revenues from corporate taxation, confirming the existence of an inverted U-shaped relationship between the two variables. Second, the estimated revenue-maximizing corpo-rate income tax rate is found to be 23.5%, slightly above Turkey’s current statutory corporate income tax rate of 22%. These findings indicate that the current rate is only 1.5 percentage points lower than its revenue-maximizing value and thus there is little room for Turkish authorities for reaching a revenue-maximizing peak through tax rate hikes. The most striking result that emerges from our empirical analysis is that raising revenues from corporate taxation further through statutory corporate income tax rate hikes is not an appropriate tax policy option for Turkey. Instead, it may be a more plausible policy option to go corporate income tax cuts that have positive implications for economic growth and employment and by implication for government taxation in the long run. If the Turkish policymakers insist on revenue-raising through corporate taxation, they should focus exclusively on macroeconomic and non-macroeconomic factors that would increase the size and profitability of the corporate sector.

Keywords: Corporate income tax; optimal corporate income tax rate; Laffer curve; tax policy; Turkey (search for similar items in EconPapers)
JEL-codes: C32 E62 H21 H25 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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