Tax Policies and Social Expenditures: Comparing Impacts on Inequality and Poverty in Turkey and Mexico

Author: 
Muhammet Halil Toprak
Program: 
Bogazici University the Graduate Program in Social Policy
Graduation Date: 
2018
Advisor: 
Ünal Zenginobuz
Abstract: 
Tax Policies and Social Expenditures: Comparing Impacts on Inequality and Poverty in Turkey and Mexico
Description: 

This thesis examines and compares the impacts of overall Turkish and Mexican fiscal system on poverty and income inequality by using the “conventional” incidence analysis method, based on micro data derived from household budget surveys. The fiscal system in both countries reduce relative and absolute poverty and income inequality. In Turkey, the social security system is more effective than the tax system, while the biggest problem of the fiscal system is the relatively high level of “regressive” consumption taxes. This thesis makes three basic recommendations: Readjusting of the Social Security Contribution (SSC) rates in favor of lower income groups; increasing the number and adjusting of income tax brackets; and reducing of Value Added Tax (VAT) and Special Consumption Tax (SCT) rates, or, preferably, eliminating them completely on basic consumption goods and goods that are important for middle income groups. Mexico’s tax system is more effective than its social security system, which is less effective than even the other transfers, while Mexico’s main problems are imbalances in social security system and low collection of personal income taxes due to high informality. This thesis asserts that increasing the low SSC rate for pensions would increase the effectiveness of Mexican social security system, while decreasing the high SSC rate for health for incomes below three times of the minimum wage income would decrease informality, which in turn would result raise the amount of income tax collected.