Evaluation of the Relationship Between Tax Revenues and Inflation in Turkey on VAR Analysis

Abstract

Tax revenues and inflation concepts are widely stressed subjects in the economic theory. The literature discusses whether a relationship existed or not between the two subjects with economic magnitude. This study aims to analyze the direction of the relationship between the two concepts and investigates whether inflation is significant among other socio-economic factors over income revenues collected in Turkey. For this purpose the relationship between inflation and tax revenues has been investigated by using the data of Turkish economy for the periods 2003:1-2016:10 by using Vector Auto Regressive (VAR) analysis. To investigate the long term relationship Johansen co-integration test and to find out short term relationship vector error-correction test have been used. According to the obtained results by using VAR models a significant relationship exists between the two variables and that the relationship between inflation and tax revenues has been negative. A one-way causative relationship has been found from inflation to tax revenues according to the Granger Causality Test.