Three essays on the tax gap in Türkiye

Taxes are the primary source of income for financing public services in almost all countries. Therefore, the effective and complete collection of tax revenues is important for public finance. Many elements, such as ensuring fiscal discipline, the sustainability of expenditures, and financing public investments, depend on a stable structure of tax revenues. In theory, the functioning of the tax system is based on taxpayers fulfilling their obligations on time and in full. In practice, however, taxpayers often underreport or fail to report their income for economic, psychological, or behavioral reasons. This situation creates the difference between the tax that could potentially be collected and the tax that is collected. This difference is known as the "tax gap" in the literature. However, the tax gap may arise not only from individual taxpayer behaviors but also from macro and structural factors such as the capacity of tax administration, the level of institutional efficiency, and the economic structure. Therefore, the tax gap should be considered as a broader and multidimensional phenomenon that extends beyond individual tax noncompliance. This thesis study aims to address the phenomenon of the tax gap in Türkiye with a multidimensional approach and, in this direction, conducts three separate analyses as three separate essays. The thesis is structured as a dissertation that analyzes tax losses in Türkiye through three essays: estimating the total tax gap through the informal economy, estimating the personal income tax (PIT) gap, and estimating the value-added tax (VAT) gap. In the thesis, separate Multiple Indicators Multiple Causes MIMIC models were established for the informal economy, the PIT gap, and the VAT gap. In the first section, the estimated informal economy values between 2004 and 2021 were used to calculate as inputs in the calculation of the general tax gap using the Raczkowski (2015) formula. The results of the MIMIC models created to estimate the PIT and VAT gaps between 2005 and 2021 were compared with the collection and accrual rates in the second and third sections, respectively. The tax gap was then estimated directly using this method. The main objective of the thesis is to analyze the economic, structural, and institutional determinants of the tax gap phenomenon in Türkiye using a multidimensional approach that does not reduce it to merely quantitative differences between accrual and collection. The thesis, therefore, demonstrates that the tax gap is not merely a technical cost factor, but rather a comprehensive economic issue that is closely linked to informality, employment structure, the quality of governance, and voluntary tax compliance.