The Laffer Curve as an applied analysis: The case of Turkiye (2006-2021)

According to Laffer, who states that there is an inverted U-shaped relationship between tax rates and tax revenues, there is an optimal tax rate and when this tax rate is surpassed, tax revenues decrease. The aim of this study is to examine the effectiveness of the Laffer curve on Turkey with quarterly data for the period between 2006: Q1- 2021: Q4, and to compare the optimal tax rates and actual tax rates for total taxes, indirect taxes and value added taxes, and show which side of the curve Turkey is on. In this study, the cointegration relationship between the variables was tested through the Bound Test model. The long-term relationships of the variables were analysed using the (ARDL) Autoregressive Distributed Lag estimation method. According to the results obtained in the analysis, it has been observed that there is a cointegration relationship between tax rates and tax revenues. When the validity of the Laffer curve in the Turkish economy is examined with the "ARDL" model, it has been determined that the tax rate variables have a statistically significant and have positive effect in the long run, while the square of the tax rate variables have a statistically significant but have negative effect as well. Since the Laffer curve is in an inverted U shape, the second independent variable is theoretically expected to be negative. The fact that the squared variables of tax rates are negative gives a result in accordance with the theoretical expectation. The optimal tax rates for total taxes, indirect taxes and value added tax are 16.4%, 11.1% and 1.7%, respectively. Keywords: Laffer Curve, Tax Rates, Tax Revenues, ARDL Model, Bound Test