The Ramsey Tax Component in the Terms of Gasoline Taxation in Turkey

Abstract

Ramsey who took the first foundations of optimal tax theory and handled optimal consumption taxes analytically for the first time, discussed how taxation rules should be in order to ensure efficiency in resource allocation and to minimize loss of efficiency. In this respect, he put forward the Inverse Elasticity Rule. The Inverse Elasticity Rule refers to tax lower than the goods with a high change in the amount of compensated demand due to taxation and higher than the low changes in the amount of compensated demand. Accordingly in this study, price elasticity of gasoline demand for Turkey was estimated by the Statıc Ordinary Least Square and the Dynamic Partial Adjustment Model for the period 2006-2017. According to the Dynamic Model, the price elasticity of the short-term gasoline demand is inelastic and according to the Inverse Elasticity Rule, gasoline is favorable in terms of obtaining higher government income. In this case gasoline may be subject to higher taxes to obtain government revenue by The Inverse Elasticity Rule as the price elasticity of gasoline demand in Turkey for the period 2006-2017 is inelastic. In this context Ramsey Tax Component that allowing the possibility of gasoline consumption being a weak substitution of leisure time and situated in the optimal gasoline tax was calculated for Turkey. The Ramsey Tax Component is expressed as a component based on the Inverse Elasticity Rule and calculated on the basis of the idea that goods are which lower change in the amount of compensated demand resulting from taxation provides higher government revenue. In this direction, Ramsey Gasoline Tax Component calculated for the year of 2017 for Turkey. Calculated Ramsey Gasoline Tax Component was determined to be less 2.46 times from the gasoline Excise Tax amount taken by the government.