Casual relationship among the direct and indirect taxes with economic growth in Turkey (2006-2018)

Taxes are among the primary sources of income for states to fulfill public needs and to interfere with economic and social life. Taxes have been the most rooted sources of income throughout the human history of states. The effects of taxes on economic growth can differ in many ways. Within tax structure, the effects of direct and indirect taxes on economic growth may differ similarly and they have a crucial role for many states in terms of implementing economy and tax policies. Therefore, the relationship between the direct and indirect taxes in Turkish tax system and economic growth between the years 2006-2018 including the provinces in Turkey was investigated by Panel Data Analysis. After investigating the cross-section dependence and stationarity levels of the variables, the presence of a long-term relationship between the variables was determined by the Westerlund and Edgerton LM Bootstrap Cointegration Test (2007). The causality relationship between the variables was determined by the Panel VECM Causality Test. The results of the present study show that there is a long-term relationship between the direct and indirect taxes and economic growth between the years 2006-2018 in Turkey. According to the causality test results, it was determined that there is a one-way causality relationship from direct taxes to economic growth both in the long and short term. Moreover, it was put forward that there is a one-way causality relationship from indirect taxes to economic growth in the short term while there is a two-way causal relationship between economic growth and indirect taxes in the long term. Keywords: Economic Growth, Indirect Taxes, Direct Taxes, Panel Data Analysis.