The role of tax policies on improvement of investment climate:the case of Turkey

Economic policies towards increasing individual and social prosperity are primary performance criterion for governments. There are many approaches explaining the relation between policy and econamic growth in the litareture. These approaches can be organised in two categories. The first group of approaches accepts that government policises as an effective tool for economic growth. To the second, governments should not intervene in anyway to economy. The investments climate analysed in this study, comprises all the factors that affects both qualitative and quantative aspect of investment. Investment climate represents transfer mechanism for the government policies towards economic growth. Depending on the theoretical perspective and methodological analises considered in this study, hypothesis of ?Corporate income tax is effective on improving investment climate? and ?Decline in effective corporate income tax rates (tax incentives, statuory tax rates regulations) improves investment climate? have been tested and policy proposal has been built up. According to the analytical findings, effective corporate income tax rates (calculated in this study) puts more efficient result, than statuory tax rates in Turkey. While statuory tax rate is not significant variable, effective tax rate is a viii significant variable fort the investment climate. This result is appopriate with the theory of internal found of investment and confirms the main hypothesis of the analysis. The investment deduction has biggest share in whole tax incentives so that it can be said that the results mentioned originates from the investment deduction. In this respect, the effects of the removal of the investment deduction in Turkish Tax System has to be folloved carefully by the policy makers.