Applicability of the rational tax system in transition economies

A rational tax system must be established to achieve fiscal policy goals. Achieving these goals are possible and essential with not only tax rates but also the compatibility of macroeconomic variables with each other in a broader perspective. In terms of the study of the rational tax system, transition economies are an essential sampling since their historical legacies and initial conditions are similar. In the thesis, the rationality of the tax system of thirty-one transition economies was analyzed. In the analysis, two indices with equal weight and different weight were developed using the data of the period from 2000 to 2018. Furthermore, the result of the equally weighted index was evaluated with several approaches such as financial, and legal, as well as the historical dynamics in transition countries. As a result of the thesis, we believe that these original findings may have a significant impact on the current literature. Index findings show that there is a rational tax system in the Baltic region, while it is partially in the People's Republic of China, Balkan, and Eastern Europe regions. In addition, it was found that there is no rational tax system in Central Asia and the Caucasus region and Russia. According to the panel analysis findings, while the tax systems of transition countries affect growth positively, the tax burden affects negatively the most. In addition, the most important variable that negatively affects the rational tax system is the tax burden in Asia, while corruption in the Balkan, Baltic, and Eastern European regions. It has been concluded that the most important variable affecting this system positively is growth and economic freedom in Asia, public activity in the Balkan region, growth in the Baltic region and public activity in the Eastern Europe region. Keywords: Rational tax system, Tax policies, Transition Economies, Panel data analysis