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The Impact of Underground Economy on the Sustainability of Tax Policy in Turkey

Author

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  • İsmail KABAN

    (Tokat Gaziosmanpaşa Üniversitesi, Niksar Sosyal Bilimler Meslek Yüksek Okulu, Bankacılık ve Sigortacılık Programı, Tokat, Türkiye)

  • Mustafa GÜL

    (Tokat Gaziosmanpaşa Üniversitesi, İktisadi ve İdari Bilimler Fakültesi, İşletme Bölümü, Tokat, Türkiye)

Abstract

This paper attempts to first evaluate the effects of underground economy on the sustainability of tax receipts, and then to search new approaches in tax policy. Underground economy reduces predictability in economic policy, decreases tax receipts, and encourages illegal activities. In Turkey, shifting taxation on indirect and labor-income taxes has created tax corridors (or tax traps), which makes the sustainability of tax receipts even more difficult. As a result, as put forward in this paper, underground economy in developed countries is lower than in developing countries. National trust in indirect taxes, which decrease the underground economy, is no longer accepted, and tax audiences in Turkey provide additional tax receipts for budgets. In Turkey, receipts from taxes on consumption have recently reached an upper limit, and this has created tax corridors, and thus tax policies have lost their elasticity. To maintain fiscal discipline, productivity of public expenditures should be increased, and the problems associated with underground economy should be tackled.

Suggested Citation

  • İsmail KABAN & Mustafa GÜL, 2019. "The Impact of Underground Economy on the Sustainability of Tax Policy in Turkey," Istanbul Business Research, Istanbul University Business School, vol. 48(1), pages 113-143, May.
    • Handle: RePEc:ist:ibsibr:v:48:y:2019:i:1:p:113-143
    DOI: 10.26650/ibr.2019.48.0040
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    References listed on IDEAS

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    1. George Drogalas & Michail Pazarskis & Evgenia Anagnostopoulou & Angeliki Papachristou, 2017. "The Effect of Internal Audit Effectiveness, Auditor Responsibility and Training in Fraud Detection," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 16(4), pages 434-454, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    İç denetim; Hile denetimi; Sürekli denetim; Bankacılık;
    All these keywords.

    JEL classification:

    • C89 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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