The Relationship Between Financial Development and Tax Revenues in Türkiye: Hatemi-J Asymmetric Causality Analysis

Financial development, defined as the growth of all elements within a financial system, can have an impact on various macroeconomic factors. Funds raised through financial development can be used to finance new investments needed for economic growth. As a result, new tax jurisdictions are created, and tax revenues increase. The aim of this study is to explore the causality relationship between financial development and tax revenues in Türkiye using up-to-date methods. Annual data on Türkiye's financial development index and tax revenue/GDP ratio for the period 1985-2021 are used. In order to determine the relationship between financial development and tax revenue, firstly, the stationarity of the series is analyzed using the two-break Narayan-Popp unit root tests that take structural breaks into account. Then, the existence of a causality relationship is analyzed using Hatemi-J asymmetric causality tests. According to the unit root test results, the series is stationary when the first difference is taken. According to the findings of the Hatemi-J test, there is no causality relationship from all shocks of financial development to all shocks of tax revenues, when the other direction of causality is analyzed, it is concluded that there is no causality relationship from all shocks in tax revenues to all shocks in financial development.