Government expenditure, the revenue constraint, and Wagner"s law : the case of Turkey

Where government expenditures are so constrained, regressing the former on national income may yield good and legitimate explanations, but these need reinterpretation. Then, national income explains tax revenue. Concomitant with the assumption that tax policies are rarely changed, it sheds a light on the nature of the tax system. An elasticity of government expenditures and national income, of larger than one, means that the tax system on the average was progressive, and if less than one, it was regressive. The author shows on Turkish data for the 1950-1969 period that the Turkish tax system was proportional because elasticity was about one. As Turkey in that period had a progressive income tax, one must conclude that either this was offset by regressivity of other taxes, or that progressivity of the income tax was eroded by tax loopholes and evasion. Musgrave claims that finding elasticity of Wagner"s Law to be less than one would be trivial, but it is not trivial to find a given tax system regressive.