Abstract

The interaction between tax revenues, important resource of public investments, and financial deepening, which can be described as one of the subscales of financial development, can be an effective factor in determining tax policies. Accordingly, the positive or negative interaction between tax revenues and financial deepening may cause differences in policies to be implemented. From this point of view, examining long and short run dynamics of the relation between financial deepening and tax revenues is crucial especially for developing countries such as Turkey. In this context, this study aims to examine the relation between tax revenues and financial deepening for Turkey. In this study, the relation between financial deepening and tax revenues in the long run has been analzyed via ARDL bounds testing approach and in the short run by vector error correction models for Turkey for the time period 1980-2016. Findings indicate that there is cointegration between financial institutions depth index and tax revenues in the long run. Accordingly, it may be concluded that tax revenues and financial deepening move together in the long run for Turkey.