TÜRK EKONOMİSİ

In Turkey, the mixed economic system had been implemented since the Republic’s founding until the 2000s.

According to functional classification, public expenditures are divided into three main sections. General government expenditure consists of essential public services spending such as administration, legislative, security, justice, and defense services. Welfare expenditures include services that citizens directly benefit from their needs, such as education, health, social security, aid, and housing. Economics expenditures, including investment and services in agriculture, industry, and services, do not directly benefit citizens but rather to firms in the market.

In the old classification of budget expenditures implemented in Turkey until 2003, budget expenditures consisted of current expenditures, capital expenditures, and transfer expenditures.

In 2002, the Special Consumption Tax (SCT) was enacted with Law No. 4760. SCT is an indirect tax, such as VAT, that is required for EU harmonization laws. The purpose of SCT is to provide a social benefit as well as earning income. For this reason, SCT is applied to luxury goods (jewelry, fur, etc.), goods that are harmful to health (alcohol, cigarettes, etc.), and goods causing environmental degradation (gasoline, etc.). SCT is an easy-to-manage and collectible tax for the tax administration as it is a single-stage tax.

While the share of direct taxes in the Turkish Tax System gradually decreased, the share of indirect taxes increased gradually. This problem is quite a controversial issue in Turkey because an increase in the share of indirect taxes in budget revenues brings up the income inequality problem.

Debts must be sustainable so that budget deficits do not create economic problems. Proper public sector debt management depends on the interest rate of borrowing and the stability of exchange rates.

Previously, the General Manager of Public Finance was responsible for borrowing under the same ministry. The General Directorate of Borrowing was established in September 2019 with the Presidential Decree (Decree number: 45).

Non-metropolitan municipalities (848 in total) are allocated 1.5% of the state tax revenues.

Figure 3.1 shows privatization amounts in Turkey from 1986 to 2019. As can be seen from the figure, privatization gained speed post-2003, and in 2013, approximately 12.5 billion dollars of revenue was obtained from privatization.

Fiscal policy can also contribute to pushing aggregate demand beyond potential GDP in a way that leads to inflation. This is sometimes known as an “overheating economy” where demand is so high that there is upward pressure on wages and prices, causing inflation. In this situation, a contractionary fiscal policy involving government spending cuts or tax increases can help to reduce the upward pressure on the price level.