As mentioned earlier, there is no consensus in the literature on whether taxes are a blessing or a curse. In the case of the distinction between direct and indirect taxes, the issue becomes much more important and has not been sufficiently addressed in the literature. This is the most important originality of the study. Although limited in the literature, it has been mentioned that different tax structures affect macroeconomic indicators (Ilaboya and Ohonba 2013). Taxes, which are also an indicator of the level of development of countries, vary from country to country. However, they are basically categorized into two types: direct and indirect taxes. The main criterion for determining which taxes are considered indirect and which are deemed direct is that indirect taxes are imposed on all individuals, regardless of their wealth, primarily during the transfer of goods within distribution channels. In contrast, direct taxes are levied in direct proportion to an individual’s income, earnings, or wealth, or are directly related to the ownership of assets. According to Buchanan (1970); “Direct taxation is defined as taxation imposed on the person who is intended to be the ultimate bearer of the burden of payment. Indirect taxation, on the other hand, is taxation imposed on persons other than the person intended to bear the ultimate burden”. Another relevant definition is provided by Shoup, who argues that “the most useful distinction between direct and indirect taxes is that indirect taxes can be ‘personalized’ or tailored to the particular economic and social characteristics of the taxed household”. Indirect taxes, on the other hand, are not so adaptable (Chase 1964). Another distinguishing factor is whether a tax office intervenes in tax payments (Erdem et al. 2023). If taxes are collected directly from the taxpayer through tax offices, they are direct and direct taxes; if they are collected through intermediaries (e.g., VAT), they are indirect taxes. In indirect taxes, the burden on the taxpayer is gradually transferred to the next level until it reaches the final consumer. The most important problem with indirect taxes is that since they are levied on everyone, regardless of rich and poor, the share of taxes paid by low-income people in their total income is very high and increases inequality in income distribution (Barnard 2010).
In this section, studies on taxes and economic growth are discussed more broadly. The number of researchers analyzing the relationship between tax revenues and economic growth is quite high. This relationship has generally been analyzed within the framework of empirical studies. The results of empirical studies have yielded contradictory findings. Fiscal instruments are an important factor in achieving macroeconomic objectives. Researchers are curious about the direction and intensity of the relationship between these fiscal instruments and economic growth. Therefore, the existing literature in the relevant field plays a crucial role in guiding policymakers and researchers.
Fiscal policies implemented by states in the context of their taxation powers reveal their tax structures. These policies are of vital importance. Mistakes in tax and debt policies have the potential to put states in difficult situations that they cannot get out of (Hassan et al. 2024). Tax structures that have changed from the past to the present may differ according to countries’ fiscal, social, and economic characteristics. In this respect, the extent to which countries’ tax structures can achieve macroeconomic objectives has become a subject of interest for researchers. In this respect, studies analyzing the impact of tax structures on economic growth across countries have produced mixed results. For example, Stoilova and Todorov (2021) analyzed the impact of three fiscal instruments on economic growth in some Central and Eastern European countries for the period 2007–2019. The study favored indirect tax revenue, direct tax revenue, and public expenditure as the three fiscal instruments. In addition, ten new member states of the European Union from Central and Eastern Europe (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia) were included in the analysis. The researchers drew some conclusions based on the analysis results to ensure economic growth. According to these conclusions, economic growth in Central and Eastern European countries can be achieved by reducing the share of direct taxes in GDP. In addition, increasing the share of exports and investment in GDP will benefit economic growth. Pandey (2019) analyzed the impact of tax structure on economic growth in India based on data from 1973–74 to 2018–19. This study examined the impact of personal income tax, corporate income tax, and indirect taxes on economic growth. According to the results, corporate income tax and indirect taxes positively impact economic growth, whereas personal income tax has a negative impact. In terms of policy recommendations, the study suggests a gradual increase in corporate and indirect taxes, coupled with a corresponding gradual reduction in individual income tax, to promote sustainable economic growth.
The results of studies examining the impact of tax revenue on economic growth show variability depending on the specific category of tax under consideration. Within certain studies, the impact of both direct and indirect taxes on economic growth is positive and negative. Sharabidze (2023) tested the effect of tax revenues on economic growth in Georgia. The autoregressive distributed lag (ARDL) model was used for the test. The analysis results show indirect taxes’ effect on economic growth is positive, whereas direct taxes are negative. The researcher argues that taxes on income reduce disposable income, thereby reducing investment opportunities and negatively impacting economic growth. Balasoiu et al. (2023) investigated the impact of direct taxation on economic growth in 27 EU countries based on data covering the period 2008–2020. In this study, the clustering method is used, and EU countries are divided into two groups in terms of high and limited fiscal efficiency. The findings show that corporate tax significantly negatively impacts economic growth in both groups. Moreover, individual income tax is associated with lower economic growth for countries with limited fiscal efficiency. According to the researchers, lowering direct taxes would increase disposable income and consumption, supporting economic growth. Moreover, direct taxes will become an incentive tool, thus creating employment opportunities. Mamo (2023) analyzed the estimation of the relationship between tax structures and per capita income growth in the state. The study found a positive relationship between indirect and direct tax rates and income growth. The analysis revealed a consistently negative relationship between indirect taxes, property taxes, and growth. Corporate income tax, individual income tax, and sales tax have no relationship with growth. In this regard, the researcher also emphasized the negative impact of indirect taxes on economic growth and unequal income distribution. Abd Hakim et al. (2022) examined the impact of direct and indirect taxes on economic development in 47 developed and 90 developing countries. The results showed a significant negative association between direct and indirect taxes and economic development in developing countries. Consequently, the analysis suggests that the prevailing tax structure does not contribute to increased economic growth in developing countries. In contrast, a positive relationship was found between direct taxes and economic development in developed countries. In another study by Mgammal et al. (2023), the impact of changes in VAT rates—one of the most significant components of the indirect tax category—on corporate financial performance was analyzed. Using the ARIMA model, the results of the study show that a sharp increase in VAT has negative effects on company financial statements and may even increase the probability of bankruptcy. These results suggest that a sharp increase in VAT may lead to a decline in tax revenues in the long run by affecting unemployment and may ultimately have a negative impact on economic growth.
Some studies measure the impact of public expenditures on economic growth. In such studies, both the effect of tax revenues and the impact of public expenditures on economic growth have been analyzed. Furthermore, the causal relationships among tax revenues, public expenditures, and economic growth have been investigated. For example, Gurdal et al. (2021) examined the causality relationship between tax revenues, public expenditures, and economic growth in G7 countries, namely “Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States”, using annual data for the period 1980–2016. According to the findings, a bidirectional causality exists between economic growth and public expenditures, and a unidirectional causality exists between tax revenues and public expenditures. Furthermore, the study did not find a causal relationship between “economic growth and tax revenues”. This study emphasizes the importance of developing tax policies in line with the economic situation of the G7 countries as a key fiscal instrument for achieving economic objectives. A similar study by Maulid et al. (2022) analyzed the causality between tax revenues, government expenditures, inflation, and economic growth in Indonesia for the period 1973–2019. According to the findings, a positive bidirectional causality relationship was found between tax revenues and government expenditures and between tax revenues and economic growth. While government expenditures cause economic growth, the reverse is not valid. The effect of inflation on tax revenues, government expenditures, and economic growth is negative. Generally, the government is claimed to generate tax revenues that can finance its expenditures successfully. In addition, an increase in revenues enhances the government’s ability to spend, making public expenditures an important tool for ensuring economic growth. Another study that examines the relationship between public finance and economic growth in positive and negative directions is Romero-Ávila and Strauch 2008. This study focuses on the relationship between “public finance and economic growth” in the EU. The results of the analysis show that public expenditures and transfers have a negative impact on economic growth. On the other hand, the findings show that public investment positively impacts growth. Direct taxation has a strong negative impact on capital accumulation.
Given the specificity of our study to Turkiye, a review of the relevant literature examines the impact of tax revenue on economic growth in the Turkish context. Within this framework, the review includes evidence from studies examining the impact of direct and indirect taxes on Turkiye’s economic growth. In this context, a positive relationship was found in a study that concluded that both indirect and direct tax revenues positively affect economic growth (Özen et al. 2022). There is also evidence that indirect taxes positively impact economic growth in Turkiye (Saraç 2015; Korkmaz et al. 2019). In such studies, it is stated that indirect taxes have a positive impact on economic growth. Increasing indirect taxes will increase government revenues. Therefore, although increasing this type of tax is important in terms of economic growth and government revenues, it is also deficient in tax justice. There are also results in the literature that direct taxes have a negative impact on economic growth (Saraç 2015; Korkmaz et al. 2019). In this case, an increase in direct taxes has a negative impact on economic growth. A heavy tax burden on income can significantly affect taxpayers’ willingness to work. In particular, such taxes on income tend to reduce individuals’ disposable income. Therefore, an increase in income taxes may have a negative impact on the savings and investments of individuals and institutions. The literature also analyzes the relationship between tax revenues and economic growth in Turkiye. Some analyses have found positive effects between tax revenues and economic growth (Polat 2019), whereas others have found negative effects (Ozpence, 2017). Moreover, the relationship between tax burden and economic growth in Turkiye has also been analyzed. Although the findings of the analyses generally suggest that the tax burden has a negative impact on growth (Mangir and Ertuğrul 2012; Karayilmazlar and Göde 2017; Organ and Ergen 2017), some studies conclude that an increase in tax burden contributes to economic growth (Koç 2019).
In this study, the concept of “tax curse” is discussed, inspired by the “resource curse” hypothesis in the literature. Therefore, briefly mentioning the “resource curse” hypothesis would be appropriate.
The resource curse hypothesis in literature is used in many research areas. Studies examining the relationship between “natural resource wealth and economic growth” in countries occupy an important place in the literature. Atkinson and Hamilton (2003) found a significant negative relationship between natural resource wealth and economic growth. In the analysis findings of this study, it is stated that resource revenues should serve as a financial source for public expenditures, and thus, increased public expenditures will support public investments. Moreover, it has been argued that increasing public investment in resource-rich countries can avoid the resource curse. Crivelli and Gupta (2014) studied the impact of increased resource revenues on domestic (non-resource) incomes in a cohort of 35 resource-rich countries. The results of this study show a statistically significant negative correlation between resource revenues and domestic (non-resource) incomes. Shahbaz et al. (2019) examined the correlation between oil prices and economic growth, intending to provide evidence for the resource curse hypothesis. The empirical results indicate the existence of a long-term relationship between the variables. Moreover, the observed negative relationship between natural resource wealth and economic growth supports the natural resource hypothesis. This study reveals the existence of unidirectional causality from natural resource wealth to economic growth. Henri (2019) aimed to identify the damages caused by natural resource rents to African institutions and economic indicators. In the findings obtained from the analysis, the institutional problems caused by natural resource rents were identified as corruption, lack of accountability, and low efficiency in public services. In terms of economic indicators, the phenomenon caused fluctuations in GDP per capita, resulting in lower levels of physical and human capital. The researcher concluded that African countries should promote good institutional governance and undertake economic diversification initiatives. Marques and Pires (2019) tested whether there is a relationship between “natural gas and economic growth” in the context of the resource curse hypothesis. Three approaches were used to test the resource curse hypothesis by comparing production, reserves, and rents. The analysis found evidence of the resource curse phenomenon only in the production approach. According to the analysis results, natural gas production eventually hampers economic growth.
To the best of our knowledge, the “tax curse” has not been addressed in the literature from this perspective. Only Sun et al. (2022) partially addresses this issue. In this study, the authors examine the impact of resource taxation on the resource curse in China. In addition, the study revealed findings on resource tax policy. According to the findings, it is emphasized that resource taxes of resource-rich states should be regulated to avoid the resource curse. This study makes an important contribution to the literature by approaching the issue from the “tax curse” hypothesis framework and analyzing taxes in terms of direct and indirect taxes.
Hence, the hypotheses of the study are as follows:
H1: Indirect taxes (IT) positively affect economic growth. There is no tax curse in terms of indirect taxes.
H2: Direct taxes (DT) positively affect economic growth. There is no tax curse in terms of direct taxes.
In addition, our hypothesis for exports added to the model as a control variable is as follows:
H3: Export volume growth (EXP) positively affects economic growth.
