Tax Revenues and Inflation Relationship: A Century-Long Application with Fourier-Based Approaches for Türkiye

Chronic high inflation periods have several disadvantages for a country’s economy. One of the most significant drawbacks is the erosion of the real value of public revenues. It is impossible to completely isolate the relationship between tax revenues and inflation. Taxes are mandatory monetary obligations collected by the state to finance public services, whereas inflation is an economic phenomenon characterized by sustained increases in the general price level, which impacts the purchasing power of money. Therefore, understanding the relationship between these two concepts is vital for developing an inflation-resilient tax system. In this study, we use Fourier-based novel empirical methods to examine the relationship between total tax revenues and inflation in the Republic of Türkiye from 1924 to 2023. The long-run estimation results indicate that inflation negatively affected tax revenues in the first century of the Republic of Türkiye. Our empirical findings supporting the validity of the Olivera-Tanzi hypothesis highlight the importance of the issue, the policies that can be applied, and their importance in managing tax revenues in an inflationary environment in Türkiye.