Abstract:

The debates regarding a potential economic crisis driven by high level of current account deficits have long been going on in Turkey. Economic policy makers occasionally enact measures to reduce the current account deficits. Among those measures, the policies which aim at reducing imports in the short run are the most prominent practices. Yet, as the import level is an important determinant of the economic growth and the exports, a decline in imports brings about a downturn in both of those economic indicators. Hence, in order to reduce the current account deficits and maintain a sustainable economic growth, the measures need to be based on sound policy choices with a long run perspective. In this view, the recent current account deficit debates focus, to a large extend, on the methods of increasing the private savings as well as the public savings. It has been recently planned to make some alterations in excise tax and income tax, which are influential on the savings in the short run, along with revisions in the property tax, which has a long run effect thereon. The purpose of this study is to evaluate the recently debated amendments to the tax code which intend to raise the public savings, and thereby to point out the potential impacts of those amendments on total savings in the economy along with the level of current account deficits. Additionally, the study provides a look into the possible impact of tax reform on tax justice. In this manner, it is aimed to guide tax authorities to account for the trade-off between economic efficiency and tax justice.

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