Introduction and Contribution:

Tax policy is an important means through which governments reward their (potential) supporters and disadvantage opponents. Adjusting tax rates, subsidies, or audit practices can affect which groups gain economic advantages and, in turn, political power. Yet these dynamics are not always transparent, especially in semi-democratic and authoritarian settings, where selective, ambiguous, and corrupt tax policies are common.

Observers of recent Turkish history have documented sophisticated efforts by Recep Tayyip Erdoğan and the Justice and Development Party (AKP) to deepen its authoritarian rule. These include staging politically motivated trials, spreading fake news, and surveilling its opponents. AKP has also used the tax system to empower or exclude select Turkish foundations (vakıfs). However, the scope of these tax practices, as well as the extent to which the AKP has departed from its predecessors, is unclear. Focusing on one or a few visible cases of regime-friendly vakıfs gaining tax advantages may ignore larger patterns.

In “Mechanisms of privilege,” Elise Massicard and Ayça Alemdaroğlu focus specifically on vakıfs that have received tax exemptions across Turkey’s modern history. Assembling an original dataset on over 300 such vakıfs between 1967 and 2022, the authors show that the AKP is not unique in terms of how it has used exemptions to achieve its political goals. However, and especially since Turkey became a presidential system in 2018, the process has become more centralized, nepotistic, and favorable towards Islamist-aligned vakıfs. 

The reader comes away with a sense of policy continuity across Turkish regime changes, which are sometimes characterized as dramatic “ruptures.” More generally, Massicard and Alemdaroğlu draw our attention to the important role of tax exemptions in fostering regime support. National and subnational partnerships have considerably enriched Turkish vakıfs, empowering them to advance both secular and religious goals and to substitute for state provision in the face of neoliberal policy reforms. “Mechanisms of privilege” extends our understanding of a shadowy policy lever that has been widely criticized by both the European Union and the Turkish opposition. 

Tax Exemption in Modern Turkey:

Vakıfs have provided a range of services across Turkey, including education, healthcare, and infrastructure projects. A 1967 law stipulated that foundations could gain tax exemption so long as they allocated at least 80% of their income to services included in the state budget, underscoring the law’s clear political objectives. During the 1970s, exempted vakıfs followed state-led efforts at social and economic development. Beginning in the 1980s, neoliberal policies led to an increase in Islamist-aligned vakıfs, which aimed to offset growing inequality and a shrinking state. 

The Turkish government has, on multiple occasions, altered the legal landscape of exemptions to further its interests. For example, a 2003 law excluded human rights-focused vakıfs from exemption, as these were likely to challenge the new AKP government. After 2018, Turkey’s adoption of a presidential system placed exemptions under direct presidential control, and a 2021 law removed the Ministry of Finance from the exemption process. These centralizing measures have rendered tax-exempt vakıfs increasingly unaccountable. 

Only a few hundred foundations are approved for tax exemption (out of several thousand that apply), and these are rarely revoked. This situation contrasts with, e.g., the United States, where foundations are automatically exempted upon meeting clear legal requirements.

Data and Findings:

The authors’ database includes 331 exempted vakıfs since 1967, several of which subsequently lost their status. It also contains information on each foundation’s political orientation, which is drawn from news reports, website descriptions, and original interview data. Massicard and Alemdaroğlu use this data to describe the pace and politics of exemption: Is AKP a glaring outlier in modern Turkish history? And does it, in fact, restrict exemption to a narrow set of Islamist foundations? 

The data reveal that tax exemptions have continuously and gradually expanded over time. Governments have differed considerably from one another, but AKP — at least prior to the transition to a presidential system — has not uniformly granted more exemptions. In fact, AKP governments have importantly differed from one another in this respect. (These findings also hold when considering the duration of each government, given that shorter tenures tend to generate fewer exemptions.)
 

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In terms of the politics of tax exemption, Massicard and Alemdaroğlu document a pattern of growing ambiguity and cronyism. For example, although foundations are legally required to be national in scope, strictly local vakıfs occasionally receive exemptions. Secular governments have tended to limit or reverse exemptions granted to Islamist-aligned foundations, and vice versa. One notable pattern under secular rule between 1997 and 2002 was growing exemptions to foundations representing the highly marginalized Alevi community, which Turkish Sunni leaders have tended to view as heretical. 

Interestingly, AKP’s first term in government was characterized by relatively broad exemptions, not solely to religious organizations. Since 2010, however, not only have Islamist vakıfs received an increasing number of exemptions. There is also a growing pattern of nepotism — foundations linked to Erdoğan’s family members receiving exemptions. 

Despite the growing centralization of exemption policy, AKP rivals at the subnational level have also used their power to undercut national priorities. For example, in 2019, the opposition-led Istanbul government canceled its agreements with AKP-aligned foundations. In sum, Massicard and Alemdaroğlu both deepen our understanding of five decades of Turkish politics and illustrate an overlooked item on the authoritarian “menu of manipulation.”

*Brief prepared by Adam Fefer.

Introduction and Contribution:

Tax noncompliance — the withholding or underreporting of revenue from goods, services, and assets — may constitute as much as 30% of global GDP. Most people have no illusions about noncompliance: large majorities of Europeans believe that many or even most of their co-nationals cheat or “shirk” on paying taxes. Yet shirking deprives the state of crucial resources that fund the provision of public services, such as policing, education, or healthcare.

From a purely self-interested standpoint, tax cheating by some may well lead others to do the same, a cycle that can lead to the collapse of service provision. In “Filling the tax gap,” however, Simone Paci argues that this inference may be premature. It is true that individuals and businesses may not contribute to state provision efforts when others do not, yet this is not the only kind of provision. Instead, those who perceive tax cheating as prevalent can turn to nongovernmental organizations (NGOs) to fill the gap. These include religious organizations, human rights organizations, sports clubs, and many more.

Paci argues that those who donate to NGOs in the face of prevalent noncompliance can satisfy a range of interests. On the one hand, they may directly and materially benefit from donating, such as when police are more adequately funded, and security improves. On the other hand, donations can yield more indirect and symbolic benefits, such as when individuals see themselves as altruistic or bolster their status as community members. 

Marshalling a wide array of evidence, Paci shows that Slovaks exposed to information about tax cheating were more likely to donate to NGOs than those not exposed. This includes a natural experiment comparing Slovak municipalities in which the names of tax cheaters were released at different times, as well as a survey experiment in which online respondents receive similar information and donate accordingly.

The silver lining of these findings is that tax evasion needn’t spell the death of service provision. Paci challenges a key assumption in standard accounts of economic rationality, namely that free-riding begets free-riding. This may be true if we restrict our focus to the state, but not if we broaden it to all those entities that provide community services.

The Slovakia Experiments:

Paci collects data from Slovakia, a country where “name-and-shame” laws publicize information about taxpayers and businesses that have cheated on their value-added tax (VAT) obligations. In 2012 alone, Slovakia may have lost 40% of its VAT revenue due to tax noncompliance. Another significant aspect of Slovakia’s tax system is that individuals and firms can donate up to 2% of their income tax to local NGOs. In turn, the latter publishes data about their donation drives. Slovakia’s name-and-shame programs seem to have served some of their intended goals, as the noncompliance lists are well-known among Paci’s survey participants. 

For experimental purposes, there are two important sources of variation as regards the name-and-shame data. First, it is not published in all municipalities. Second, some municipalities that do publish the data do so before the donation deadline. As Paci theorizes the connection between disclosures and donations, the natural experiment thus compares “treated” municipalities with “control” municipalities, whose disclosures were released after the deadline. The experiment’s validity depends on the assumption that name-and-shame data are released at random times, or rather by “nature.” This seems plausible in Slovakia.
 

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FIGURE 1: Noncompliance disclosures across Slovakian municipalities. Notes: The map visualizes the total number of unique firms involved in VAT noncompliance disclosures per 1,000 inhabitants between 2009 and 2021 for all Slovak municipalities, using the 2009 population.
 

The natural experiment supports Paci’s argument, as municipalities where disclosures are made prior to the donation deadline are 16% more likely to donate. This is not a small effect, corresponding to a difference of about 20,000 Euros. To reiterate, the intuition here is that pre-deadline disclosures provide critical information to taxpayers about how underfunded state-provided public services will be (due to noncompliance); this, in turn, motivates them to donate to nonstate providers.

Paci then fielded a survey experiment among over 2000 Slovakians online. This presented treated respondents with written “vignettes” that replicate the real-life disclosure lists. By contrast, control group respondents simply received an ordinary list of taxpayers. Afterwards, some respondents played a “dictator game” in which they could choose whether to donate Euros to NGOs. 

The results of these surveys provide additional evidence for Paci’s argument, as respondents exposed to information about noncompliance donated 10% more to NGOs than the control group. In terms of the motives underlying donations, Paci finds evidence for the importance of altruism and reputation. Regarding the former, those who believed their municipality was critically dependent on public services were more likely to donate. Reputation motives were important because survey respondents were less likely to donate if their contributions were kept anonymous.

Finally, Paci presents evidence from Europe-wide value surveys conducted in 1999. These interviewed over 40,000 people from 33 countries. Consistent with the Slovakia-specific evidence, there is a strong correlation between respondents’ beliefs about perceived tax cheating and their propensity to volunteer for local NGOs.
 

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TABLE 7: Perceptions of tax cheating and volunteering. Note: †p < .10; *p < .05; **p < .01.
 

In all, Paci’s findings caution against drawing simplistic and pessimistic conclusions about free-riding and taxation. Yet readers may wonder how much of a difference name-and-shame policies could really make. On one level, few countries have passed such laws, and few politicians will likely see name-and-shame legislation as a vehicle for advancing their careers. On another level, it is not clear that nonstate service provision can even come close to compensating for just how much the welfare state has retrenched across the Western democratic world. Voluntary donations, whether motivated by self- or other-centered concerns, simply cannot sustain the widening gaps in modern healthcare or mass education systems.

*Brief prepared by Adam Fefer.