Instruments And Effects Of Monetary And Fiscal Policy: The Relationship Between Inflation, Vat, And Deposit Interest Rate

TL;DR

This paper investigates the long-term relationships and causal effects between VAT revenues, deposit interest rates, and inflation in Turkey from 1985 to 2022 using advanced econometric models.

Contribution

It provides new insights into the bidirectional causality among VAT, interest rates, and inflation, employing VECM analysis on Turkish economic data.

Findings

Causality from deposit interest rate to VAT and inflation

Bidirectional causality between inflation and VAT

Long-term cointegrated relationship among variables

Abstract

In this study, we aimed to examine the effect of VAT revenues and Deposit Interest Rates on Inflation in Turkey between 1985-2022. Within the framework of econometric analysis of the obtained data, the analysis was carried out using ADF unit root test, Johansen Co-Integration Test, Error Terms and VECM (Vector Error Correction Model) models. According to the analysis results, it was understood that the data were stationary at the I(I) level, it was determined that there was a cointegrated relationship between them in the long term, and by estimating the error term, causality findings were determined within the framework of VECM analysis. According to the causality results of the Wald Test; causality is found from Deposit Interest Rate to VAT and Inflation, and from Inflation to VAT and Deposit Interest Rate (bidirectional), while causality is also found from VAT to Inflation and Deposit Interest Rates.