The Impact of Corruption on Tax Revenue: The Case of Türkiye

Introduction

Since corruption is a social phenomenon, many disciplines in history have addressed and evaluated its causes and consequences and given it importance. In this context, corruption has been studied by many disciplines, from politics to public administration, sociology to anthropology, and economics to law. Each branch of science has defined corruption within its scope. The common aspect of these definitions can be stated as the existence of interest and the fact that people use the power of their position to gain that advantage. In economics, many definitions of corruption can be found in the literature, with the World Bank definition accepted. Corruption is “the malicious use of public power and resources for personal gain and purposes.” The reason for the sensitivity to corruption in public finance lies in the enormous advantages that corrupt individuals or institutions can gain. Both direct and indirect financial benefits can be obtained in this area. Individuals can earn directly by paying less taxes or avoiding taxes and indirectly by gaining competitive advantages over foreign investors in the country. On the other hand, widespread corruption among officials can lead to the deterioration and complexity of tax systems and the introduction of special practices that create more opportunities for corruption. Studies on corruption show that corruption has significant economic and social costs. The most cited harm of corruption is that it discourages investors, thus negatively affecting the country's investment, growth, and development (Rafay, 2021). Corruption also negatively affects allocative efficiency and the use of resources. Corrupt government officials prefer to channel investment into large projects where corruption is more difficult to detect. As corruption increases, the waste of resources in the public sector increases budget deficits, which are the source of many economic problems, from inflation to high-interest rates. In the presence of corruption, both the composition of public spending changes and public revenues, especially tax revenues, decrease. This situation significantly impacts the level and composition of public spending, especially on the public financial balance, and reduces the tax system's efficiency. This is because corruption manifests itself in tax avoidance, tax evasion, and illegal tax exemption, resulting in a tax loss for the state. This disrupts the supply of goods and services in the public sector, makes public services incomplete and inefficient, triggers excessive consumption of resources, and results in lower-than-expected realization rates of estimated public revenues. Studies conducted to examine the relationship between public finance and corruption emphasize that the ability of the state to implement effective public financial management is extremely low in countries where corruption is widespread (Nikolov, 2021). Corruption, a covert act by nature, negatively affects macroeconomic factors such as investment, growth, and income distribution in economies. Therefore, the state, whose main purpose is to serve society, has important responsibilities in fighting corruption. The state should perform these tasks at the national and international levels in cooperation with institutions. At the same time, trust in the state should be strengthened by involving the public. With the disappearance of borders between countries due to globalization, corruption is now becoming an international problem. The effects of corruption at the local level are spreading to other countries with the increasing mobility of capital and labour, and the fight against corruption is being taken to an international platform. At this point, supranational associations such as the OECD, the United Nations, and the European Union are trying to fight corruption with projects and studies (Rafay, 2023a). However, since measuring the extent of corruption is impossible, reports and surveys are prepared to fully determine this perception. As a result of these reports and surveys, it becomes possible to perceive the extent of corruption. At this point, the “Corruption Perceptions Index” developed by Transparency International is of interest. According to this index, countries are assigned a value between 0 and 1, and it can be said that in countries with a value of 0, there is no corruption, and in countries with a value of 1, there is corruption. In this study, the concept of corruption is defined, and the causes and effects of corruption are shown. Then, the effect of corruption on tax revenues in Türkiye is evaluated with regression analysis, and the results are evaluated.