The Role and importance of taxation in the development of capital markets in Turkey

ABSTRACT Both increases in savings and channeling of savings into productive investments play an important role in economic development. Realizing investments depend on savings. However, increasing savings and using them for investment require efficient and functional capital markets. As known, capital markets are the source of long-term funds. Therefore, functional and deep capital markets play an crucial role at providing funds to investors and increasing investments. Taxation of international capital flows increased highly with globalization process is one of the most discussed issues on international agenda. Short- term and speculative money flows led to financial crises in many countries of the world. In this context, security transaction tax has regarded as a solution to overcome such speculative flows. However, requiring implementation in the entire world for success of this kind of tax and not approving of countries this situation in respect for taxation power have limited practice of this tax. Capital markets in Turkey have begun to develop especially after 1980. With approval of The Capital Markets Act and establishment of The Istanbul Stock Exchange this development has gained speed. Nonetheless, capital markets do not function at the level as expected. Tax policies are one of the incentive instruments to cope with this deficiency. However, the high level of public debt burden in Turkey limits efficiency of tax policies. Therefore, efficiency of tax policies will increase with solution of this problem. VI