Effects of inflation tax versus Tanzi effect on the real value of tax revenues: Evidence from Turkey

The paper analyzes the effects of inflation on real tax revenues by relying on empirical findings. Real tax revenues are obtained by dealing with the two adverse impacts of inflation including the inflation tax increasing the revenues and the Tanzi effect reducing the overall income. Bootstrap VAR models are performed to carry out the short term relationship between inflation and real tax revenues. Bootstrap techniques are preferred to overcome the small sample data problem. Major findings, unlike the expectations with respect to Tanzi effect, show that inflation positively affects the real tax revenues. The impact of the inflation, taken as some sort of hidden tax, is visibly stronger during the period between 1987 and 2005. In addition, the performances of the analytical method and the bootstrap methods are compared, resulting in a better performance in the estimates by bootstrapping.