The redistributive effects of fiscal policies in Turkey, 2003

This thesis investigates redistributive impacts of fiscal policies at household level in a middle income developing country, Turkey, in 2003. It utilizes the benefit and tax incidence methodologies and applies the welfare dominance analysis and summary indices of progressivity to assess the distributional impacts of the fiscal policies. The 2003 Household Income and Consumption Expenditures Survey from the Turkish Statistical Institute is used for this purpose. Chapter 2 reviews the theoretical and empirical literature for measuring inequality and progressivity. The aim of the chapter is to review and discuss the measures used in the thesis. This is followed by the three empirical studies that form the core of the thesis. Chapter 3 and 4 examine redistributive impacts of publicly provided education, health, infrastructure services and social cash and in kind transfers. The key findings show that apart from primary education, none of the social services in question are well targeted to the poor, although the incidence of the services is progressive. In Chapter 5, attention is paid to direct and indirect tax policies in Turkey. Indirect taxes dominate tax revenues in Turkey. The results of the standard tax incidence analysis show that direct taxes are progressive thanks to personal income tax and property taxes. In the context of indirect taxes, redistributive power of indirect taxes is limited. The incidence of indirect taxes is sensitive to the welfare indicator chosen. While the indirect taxes reduce expenditure inequality, they increase income inequality. Effective indirect tax rates estimated by using input-output tables prove the importance of taxation on imported goods and intermediate goods, which are ignored by the standard tax incidence analysis. The incidence with effective indirect taxes is less progressive in the case of expenditure as the welfare indicator and more regressive in the case of income. The net fiscal incidence indicates that the fiscal policies have a positive redistributive impact on both expenditure and income inequality, and this positive impact is mainly driven by the public benefits