Relationship between Foreign Trade Deficit and Special Consumption Tax Revenues with Structural Breaks in Turkey

Abstract

Trade balance is one of the most important indicators of economic stability. The increasing capital inputs in recent years, where capital liberalization is highly realized, make local currency more valuable. During this process that import grew while export went down, the foreign trade deficit has become greater, which impairs competition. Special consumption taxes that have been implemented more actively in recent years are intended to reduce domestic demand for import and avoid foreign trade deficits. This study examines whether there is a relation between the foreign trade deficit and special consumption taxes for Turkey between 01/2006 and 05/2013 using the Zivot-Andrews unit root test based on structural breaks, the Gregory-Hansen cointegration test and the Toda-Yamamoto causality analysis. Empirical practices in the study showed that neither series were stationary in level and there was no long-term relation between them. As a result of the Toda-Yamamoto method based on the Granger causality analysis, bidirectional causality was determined in between the variables.

Keywords: Foreign trade deficit, Special consumption tax, Structural change, Toda-Yamamoto causality analysis