Analysis on the economic effects of customs taxes: The case of Turkey

With globalization, integration has been achieved between countries in economic, political, cultural, technological, environmental and many other fields, and countries have taken important steps towards implementing free foreign trade policies. In parallel with the liberalization tendencies of the countries, although the customs tariff rates, which was an intensively used foreign trade policy tool in the past, were significantly reduced, it is still used effectively as a foreign trade barrier today. As a matter of fact, many countries benefit from tariff protections, including those that claim that a free international trade system will increase world welfare. Turkey has started this liberalization process by implementing export-oriented policies since the 1980s and completed its efforts to pursue a completely liberal policy by being included in the 1996 Customs Union. This study aims to examine the economic effects of customs tax rates applied on 10 different sectors in the Turkish manufacturing industry sub-sectors in the postliberalization period 1996-2019. For this purpose, the production effect, consumption effect, foreign trade effect, income effect and distribution effect created by the customs tax rates applied in the country in the said manufacturing industry sectors are presented. As a result of liberalization initiatives in Turkey, significant reductions in customs duties occurred after 1996, however, it has been observed that there have been increases in customs tax rates again in the last few years. As a matter of fact, there is no significant increase in the production and employment indices in the Turkish manufacturing industry sectors, where import values are much higher than exports, especially during the crisis years. The tax revenues obtained from these sectors show parallelism to the sectors that import the most. In this context, the effects of customs duties applied in Turkey on production, employment, imports and total tax revenues are analyzed econometrically using Panel Data Analysis. As a result of the panel data analysis, a negative relationship was found between customs duties and production, employment and imports, and a positive relationship between customs duties and tax revenues. A %1 increase in customs tax rates reduces production by a very low rate of %0,038, while reducing imports by %0,144. As a matter of fact, the negative impact of customs duties on foreign trade is an expected situation. However, a %1 increase in customs tax rates increases tax revenues by %0,944. This study is important in terms of presenting a detailed analysis on a sectoral basis, at what level and how applied foreign trade policies and foreign trade barriers affect production, employment and foreign trade in the country. In this sense, it is likely to guide the production and foreign trade policies planned to be implemented in the future. In addition, this study contributes to the literature in that it is one of the few studies that examines the narrow partial economic effects of customs taxes in detail on a sectoral basis.