The effects of tax amnesties on economic growth and shadow economy in Turkey

Tax amnesties are frequently applied in Turkey as in the rest of the world. The implementation of the 36 tax amnesty law on economic, political and administrative grounds from the foundation of the Republic of Turkey to the present day shows that amnesties are applied every three years on average. The economic and political crises deeply affect the entire society. Therefore, tax amnesty implementation is expected to provide social reconciliation and to create positive effects on the economic growth of the increased tax revenues as a result of amnesty. On the other hand, tax amnesty applications are thought to have negative effects such as weakening the tax compliance of honest taxpayers, creating injustice among honest and dishonest taxpayers and therefore encouraging people to take part in the shadow economy. In this study, we examine the effects of tax amnesty applications on economic growth and shadow economy in Turkey for the periods of 1970-2017. We first estimate the size of the shadow economy by considering the Currency Demand model suggested by Tanzi (1983) by means of Ordinary Least Squares. In the second model, the effects of 19 tax amnesty applications by conducting for the periods of 1970-2017 on the shadow economy by using the augmented Currency Demand model. Finally, we examine the effect of tax amnesty on economic growth in terms of economic growth model where real GDP is considered as dependent variable via OLS. The findings indicate that the effects of tax revenue on the economic growth is not found statistically significant after tax amnesty application. On the other hand, it is found that tax amnesty applications lead to increase the shadow economy. Key Words: Tax Amnesty, Economic Growth, Shadow Economy, Currency Demand Approach, The Method of Least Squares.