The effect of taxation on democracy: New evidence from Türkiye

The relations between democracy and taxation are discussed by various theories and have been tested empirically. In this context, it is important to examine the relationship between taxation and democracy in Turkey. The study aims to examine investigate the effects of taxation level, tax structure and tax categories on the level of democracy for Turkey. Annual data for the period covers 1980-2021 are employed in the study. Ridge regression, which has various advantages over standard regressions in time series econometrics, is used to find an answer to the research question. This method can also overcome the risk of multicollinearity between independent variables. The robustness check of the findings is strengthened with Lasso regression based on machine learning. The findings illustrate that the level of taxation, direct taxes, taxes on income, profit and capital gains and taxes on property in Turkey has a strong positive effect on democracy. International trade taxes and taxes on goods and services have a statistically negative effect on democracy. There are also findings that direct taxes, taxes on income, profits and capital gains and property can have a negative effect on democracy. Additionally, statistical evidence has been found suggesting that indirect taxes may have a positive impact on democracy. It has been observed that the level of taxation, indirect taxes, direct taxes, and other tax variables are not related to democracy statistically. The fact that direct taxes, indirect taxes and taxes on property are not meaningful with democracy, and taxes on property and taxes on income, profit and capital gains negatively affect democracy caused the study to differ from the usual findings in the literature.