Economic effects of the minimum wage taxation: A social accounting matrix analysis for Turkey

In this study, the possible changes and effects on the economy in cases whether the minimum wages is taxed or not taxed has been investigated. The minimum wage is a crucial concept for workers, employers and the public sector. The fact that approximately 40% of the workers employed in Turkey earn wages at the minimum level further increases the importance of the minimum wage for our country. In the study, a Social Accounting Matrix for 2017 was constructed for the Turkish economy. With the multiplier analysis applied on the 2017 Turkish Social Accounting Matrix, the normal situation where minimum wages taxed, the first different situation where income and stamp taxes are not collected from the minimum wage, and the second different situation where no cuts are made on the minimum wage, which is the net minimum wage will be equal to the gross minimum wage, has been compared. For the first and second cases, the increases in the total wages of minimum wage earners arising from the non-taxable part of the minimum wage are accepted as a transfer to the minimum wage earning households in the multiplier analysis. According to the results of the applied multiplier analysis, if the minimum wage is not taxed, a lot more than the reduced tax amount going to be returned back to the economy. It is found that the economic effects will be much greater in the case of that the gross minimum wage replaced by the net minimum wage than the non-taxable case of minimum wage which means that the minimum wage is exempted from the income and stamp taxes. After the first impact of the non-taxation of minimum wages on wage incomes with the linkages in the economy, consumption, production, factor incomes and then once again the income of workers and firms will increase. As a result of the transfer, it has been estimated that the biggest impact will be on the minimum wage households. Then respectively, consumption, production, and production factors were the accounts which the greatest effects have been seen. Thus, the minimum wage worker who earns only enough income to support himself/herself will have a better and adequate wage. In addition to the increase in the quality of life of the minimum wage worker, whole economy will be positively affected by this situation.