Tax revenue forecasting : a methodological study with application to Turkey

Turkey's revenue functions under its present tax structure are estimated. In a country where the tax structure has changed frequently in the recent past, the projection of future tax revenue presents a technical problem for which no solutions of general applicability have been found. The projection should be based on the revenue function for the present tax structure. A plausible solution is to introduce tax structures into the regression equations. Using this approach, the estimated revenue functions show that the tax structure changes from 1963 to 1971 tended to increase revenue elasticities. The result of simulation indicates that the structure changes were responsible for approximately 62 percent of the growth in the total tax revenue during this period. In 1971, the tax revenue to GDP ratio was 18.7 percent. Projections show that this ratio will increase to 21.4 percent in 1977 if the 1971 tax structure is maintained, and to 23.1 percent if the additional revenue from the 1972 tax measures grows at the same rate as the revenue under the 1971 structure.