A Microsimulation Analysis for a More Progressive Tax Policies in Turkey: 2003 - 2013

The incidence of public finance policies has been an important area of research in applied economic studies last couple of decades, particularly for the countries who are struggling to cope with high inequality and poverty rates. Turkey as a country with high income inequality has experienced changes in its tax policies last 10 years, particularly in the personal income tax schedule. The changes have included serious cuts in top tax rates (from 45% to 35%), and reduction in the number of income brackets. Most importantly Cost of Living Allowance for workers was introduced in 2008. Along with these changes, indirect taxes have continued to be the dominant revenue source for the government thanks to high excises. As these developments can have contradictory redistributive impacts, there has been no work to investigate the impact of these changes on distribution. For this aim, in this paper we present the first microsimulation model for Turkey which is designed to estimate both direct and indirect tax burdens on individual and household level. Microsimulation method is an efficient tool as it gives researchers and policy makers the opportunity to compare the results of the different policy recommendations. In addition to evaluating the impacts of tax policy changes last 10 years, we present the results of different simulations conducted to create more progressive tax policies for Turkey