Detailed Analysis of The Laffer Effect at Turkish Social Security Administration Premium Revenue

This study is an attempt to analyse and deep the social security premium rate/load as a factor that influences the premium revenues for the Turkish Social Security Administration by using the Laffer curve logic and to identify relation and the premium load that maximizes premium revenues and assessing the revenue increase for the Administration. Turkish Social Security system separates the employees in three main groups: Indıvıduals working on service contract who are subject to SSK (Social Insurance Administration), Individuals working on their own names and accounts who are subject to Bag-Kur (Craftsmen And Artisans And Other Self-Employed Social Insurance Institution) and public employees or civil servants who are subject to ES (Retirement Fund General Directorate) before the social security reform. The previous studies; “Model Proposal for Investigating and Increasing the Social Security Administration’s Premium Collection Revenue” analysed the relationship between the premium revenue and premium rate/load for all the employees, make a total analyse for premium rate and revenue and “The Laffer Effect at Turkish Social Security Administration’s Premium Revenue” analysed the most crowded group of the Turkish Social Security system SSK.In this study it will be focused on Bag-Kur and ES premium revenue. The monthly data for the period between January 2009 and December 2012 were used in this study. Keywords: Premium Rate; Premium Revenue; Earnings Based On Premium; The Laffer Curve

Should before or after tax equilibria point elasticities be calculated when the Laffer effect is considered in a micro market?

Purpose – Traditionally, the Laffer effect has been discussed in the context of endogenous growth models or in the case of the labor market with respect to willingness to supply more labor given a tax incentive on wages. The paper adopts an inductive approach to discuss it in the context of a product's market, say automobile industry in Turkey. Design/methodology/approach – The author revisits the ad valorem tax model on a product and investigates how the elasticities of demand and supply and the tax rate are related to the Laffer effect. The author considers a special case where demand curve is non-linear and the supply curve is completely elastic. This specific model fits the practical case where the Turkish government expected the auto sellers to pass fully the temporary partial tax concession onto the consumers during the global crisis in 2009. Findings – The author showed that the demand elasticitiy must be calculated neither at the intersection of the initial equilibrium nor that of the final equilibrium points, but somewhere else. The author defined a pass-through coefficient which was different from the classical burden of tax concept, calculating the degree of pass-through of a tax decrease from firms to consumers. Moreover, the author found a one-way relationship between the overall tax revenues of the government and a single sector. Research limitations/implications – The case of tax revenues where both the demand and supply curves are non-linear and non-extreme must be solved. Practical implications – The author showed that the government's dual expectation of both boosting the economy, increasing employment and raising its tax revenues can sometimes be consistent given a usual upward sloping supply curve. In the case of a perfectly elastic supply curve, the tax revenues can even be higher with a higher level of equilibrium quantity. Social implications – The Turkish government aiming to support the production and employment in this leading export industry, may have expected this temporary tax decrease to be passed completely onto the consumers by the producers. However, this did not happen as producers’ prices to the consumers did not decrease as much as the amount of tax. This paper shows that the after tax elasticities and the current level of tax rate must have been compared. Originality/value – The author pointed out to the importance of being clear in explicitly indicating at which points the elasticities derived from some function (tax revenue function) of equilibria variables (price and quantity) must be interpreted. In this paper, doing many numerical calculations allowed us to notice the proper point of calculation of the demand elasticity, which is the after-tax price along the “no tax demand curve”. Moreover, a pass-through coefficient is defined which is different from the classical burden of tax concept.