Effect of Income Tax on Income Distribution in Türkiye: Evidence from Dynamic ARDL Simulations

Poverty and distorted income distribution are one of the main socioeconomic problems of many underdeveloped and developing countries. Another factor that worsens the situation for these countries is the inequality in income distribution and the existence of large differences between income groups. In this case, while a large segment of society has a low share in the total income, a large portion of the total income falls into the hands of a small minority. One of the main duties of governments is to ensure justice in income distribution in society, and one of the main instruments they can use for this purpose is income tax policy. An effective and fair income tax policy will tax people in direct proportion to their income, thus preventing the concentration of wealth in a certain segment and helping to protect the poor.In this study, which is about the impact of taxes on income distribution, the situation in Turkey is investigated using time series methods. Findings obtained from the analysis based on the dynamic ARDL model reveal that income tax in Turkey does not affect income distribution in the long term but has a significant but positive effect in the short term. In other words, income tax policy in Turkey has an increasing impact on income distribution disorder in the short term, causing a situation that is detrimental to the poor. Accordingly, it would be useful to take corrective measures by rearranging tax rates according to income brackets.