6th Global Conference on Business & Economics ISBN : 0-9742114-6-X
Effects of Tax Amnesties in Turkey and Greece
Sinan Bastas, Northwestern University, Evanston , IL , United States
ABSTRACT
This research explores the different procedures of tax amnesties held by the Turkish and the Greek governments and how these procedures affect the local economy. Although there might be a numerous reasons behind the slow performance of the Turkish economy when compared to Greece, this research mainly seeks to answer whether the not-well-structured tax amnesty programs in Turkey negatively affect the government revenue.
INTRODUCTION
Although there must be a hundred different reasons to the current gap between the Turkish and Greek economies, I am specifically interested in the attitudes of the two countries towards their use of tax amnesties. It has come to my attention that both Turkey and Greece have been through numerous tax amnesties over the past 30 years. Yet unlike Greece, Turkey has been struggling with the negative effects of the tax amnesty programs on its economy. I believe that if these programs are not bundled with transparent, user friendly, solid and strict tax structures they will bring about numerous long term problems such as the formation of an informal economy, an increase in the number of violators – an increase in tax evasion - , and an ultimate decrease in government revenue. That is why I consider the use of tax amenities only as a means to increase government revenue in the short term an ill behavior which will hurt the economy badly in the future. In that regard the comparison between the Turkish and the Greek tax amnesties will help me to test my hypothesis on the matter.
Tax Amnesty
How do governments decide to create a tax amnesty program? Are these decisions about amnesty programs economical or political decisions? Although tax amnesty programs are very common among different countries around the world, the literature about this topic is very rare and limited. There may be different reasons to this such as differing tax laws, tax cultures or collection methods from one country to another. In this section, I will try to analyze when a tax amnesty program is used and what its usual expected outcomes are.
When can we expect to see tax amnesty programs? A NBER paper written by Leonard and Zeckhauser (1986) reveals that tax amnesties are likely to be used by the government when there are a relatively large number of offenses committed by people or when it is difficult to enforce the penalty.
What do the governments expect from implementing a tax amnesty program? It seems easier to identify the short term outcomes of the program, but much harder to recognize the long term effects as they vary greatly from nation to nation. Some of the most important short term expectations after a tax amnesty seem to be an increase in the government revenue and giving violators of the system a second chance to start with a clean record. If the tax amnesty program is to be followed by a stricter enforcement based on a better structured, transparent and solid taxation system, the governments will have the chance to increase the number of taxpayers while boosting up the confidence of their citizens towards the new system. Yet, if a still complicated and uneasy tax system is to follow the amnesty, the regular taxpayers will be discouraged and the number of tax violators will eventually increase.
LIMITATION OF THE STUDY AND FUTURE STUDIES
In this research, the data on Turkey is based on numerous critical assumptions made by the author as a result of insufficient data. Different numbers can be used for the percent of the Turkish informal economy and the number of firms in the informal economy. Different assumptions might create different results. In the future the Turkish Government might decide to reveal the necessary data or sponsor a research on the matter to provide it. When that opportunity arises, the hypothesis can be reevaluated and be modified. No matter what, this paper shall hold a light to any other author’s research on the matter in the future.
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OCTOBER 15-17, 2006
GUTMAN CONFERENCE CENTER, USA