Fatih Özatay, PhD - [Archive]

On tax revenues 22/02/2011 - Viewed 1195 times

We can achieve Ireland's tax revenue/GDP ratio for 2008, for instance. This corresponds to a 4.6 points of improvement in the ratio relative to the GDP.

Having examined the per capita income levels, now it is time to compare the tax revenues. I have carried out a similar evaluation on the basis of Organization for Economic Cooperation and Development (OECD) data. The newest data in that evaluation was on the year 2007. How data for 2008 and partially for 2009 are available. Therefore it will be wise to revisit this highly important issue.

The table below includes data on tax revenues in three large economies (USA, Japan and Germany), in troubled European Union countries (Ireland, Greece, Portugal and Spain) and in Israel, Korea, Mexico and Turkey. It gives the ratio of tax revenues to gross domestic product (GDP) for the 2007-2009 period. Moreover, the table includes per capita income in the examined countries in 2008. Tax revenues are taken from OECD dataset and per capita income by purchasing power parity figures are taken from the IMF dataset.

Lowest tax revenues

Let us take a look at the tax revenues first. To points to highlight: first, Mexico and Turkey have the lowest tax revenues relative to the GDP among the examined countries as well as among all OECD countries. The USA also has low tax revenues. Second, Turkey's tax revenue as a ratio to its GDP is quite below the OECD average.

The initial question the comparison raises is that Turkey has a room to maneuver to increase the tax revenues relative to the GDP. The assessments taking into account the tax revenues as ratio to the GDP are criticized in one aspect: It is maintained that in the studied countries per capita income and thus the tax paying capacity is high. They argue that such identification does not apply for Turkey.

This is why the last column of the table gives the level of per capita income. It is true that among the studied countries Turkey has the lowest per capita income level. In that case would it be wrong to argue that Turkey can achieve an improvement in tax revenues?

Turkey is not a poor country

Think about one extreme: All citizens in a country live below the poverty line. Under the assumption that citizens will not be pushed into hunger, you would expect that the tax revenues of the country are extremely low. Then, there is not sense in arguing that the country can improve the tax revenues referring to low level of the revenues as a ratio to the GDP.

Nevertheless this is not the case for Turkey. First, Turkey is not a poor country; it is in the middle-income group. Second, among the countries in the same group there are some with quite different tax revenues/GDP ratio. See Japan and Germany or Portugal and Korea, for instance. There exists a problem with 'preferences'. Some countries have preferred to seek for higher tax revenues.

The last point to state: I am not arguing that Turkey could achieve the 35% OECD average. We can achieve Ireland's tax revenue/GDP ratio for 2008, for instance. This corresponds to a 4.6 points of improvement in the ratio relative to the GDP. This is a huge resource if used properly. Of course this cannot be achieved overnight; this can be done by extending efforts over a couple of years.

This commentary was published in Radikal daily on 22.02.2011