Tax tilting and tax smoothing: Evidence from South Africa and Turkey

Abstract

This paper examines the existence of tax smoothing hypothesis in two emerging economies: South Africa and Turkey. To test the tax smoothing hypothesis, we use the relationship between the budget surpluses and government expenditures. Before testing the hypothesis, we determine and filter the effect of tax tilting. Due to importance of seigniorage revenues in emerging economies, we add these revenues to tax receipts in order to cope with inflationary taxation. The results of our study show that tax tilting is common both in South African and Turkish fiscal policies. More importantly, our overall findings lend evidence against the existence of tax smoothing in South Africa and Turkey. © 2020 Elsevier B.V., All rights reserved.