Redistribution Trends in Turkey: Unintended Consequences Vs. Deliberate Policies

Abstract

We investigate the impact of taxes, transfers, and social spending on inequality in Turkey during the first two decades of the 21st century. We employ Household Budget Surveys from 2003, 2007, 2011, 2015, and 2019 to estimate market, pension as deferred income, gross, disposable, consumable, and final incomes following the framework developed by the Commitment to Equality Institute. We show that the equality-enhancing effect of total taxes and transfers became more noticeable, resulting in a larger decline in the Gini coefficient from 2003 (12 percentage points) to 2019 (17 percentage points). A large part of the higher equality-enhancing impact over time is accounted for by the unintended consequences of structural changes, past policies, and demographic trends. We focus on the forbearance of self-employment and capital income under-reporting, the endurance of past pension policies, the effect of the declining fertility rate, and explicit policy choices in the areas of health and social assistance. Compared to Latin American countries, the Turkish welfare system redistributes more, especially through the pension system, but also causes relatively higher fiscal impoverishment for low-income households due to the disproportionately high share of indirect taxes.