Turkey collects tax revenue equal to roughly 24% of GDP — the lowest ratio among its closest European peers, and a full ten points below the OECD average. Panel research comparing Turkey against six of its most economically comparable Eastern European neighbours finds that FDI inflows are one of the few variables that reliably move that number, and the causal arrow only runs one way.
Turkey's tax-to-GDP ratio is a recurring theme in its public finance debate, and for good reason. According to the OECD's Revenue Statistics 2025, Turkey's tax revenue — including social contributions — sat at 24.0% of GDP in 2024, up from 23.2% a year earlier, against an OECD average of 34.1%. Part of this reflects structural features of the economy: Turkey has the lowest GDP per capita among European OECD members, a comparatively large informal sector, and a VAT base that reaches only about 40% of final consumption, among the narrowest in the OECD.
None of that is news to anyone who follows Turkish fiscal policy. What's more useful for a foreign investor is a more specific question: among the levers available to close that gap, how much does foreign direct investment actually matter — and is the relationship strong enough to act on?
Turkey's Tax Revenue Gap, By the Numbers
Turkey's ratio is low even set against the region it's most often compared to. Romania and Bulgaria are the closest, at 28.8% and 30.5% — both well below the OECD average, but still four to six points ahead of Turkey. The Visegrád comparators sit higher still: Czechia at 34.0%, Hungary at 34.4%, Slovakia at 35.6%, and Poland at 36.6%, all at or above the OECD average. Slovakia and Poland have also moved the furthest, climbing 7.7 and more than 5 percentage points respectively since 2010.
| Country | Tax Revenue (% of GDP), 2024 |
|---|---|
| Turkey | 24.0% |
| Romania | 28.8% |
| Bulgaria | 30.5% |
| Czechia | 34.0% |
| Hungary | 34.4% |
| Slovakia | 35.6% |
| Poland | 36.6% |
| OECD average | 34.1% |
Sources: OECD Revenue Statistics 2025 (2024 data) for Turkey, Czechia, Hungary, Slovakia, Poland and the OECD average. Bulgaria and Romania are not OECD members; their figures are Eurostat 2024, measuring total taxes and net social contributions as a share of GDP on a broadly comparable basis.
Why These Six Countries
Comparing Turkey to “Eastern Europe” as a bloc is not especially useful — the region spans everything from EU member states with mature institutions to economies still transitioning from the 1990s. A more rigorous comparison starts with a wider field of 18 Eastern European economies and narrows it down using economic-similarity indicators — annual GDP growth, gross national savings, government structural balance, inflation, and central bank policy rates, drawn from the IMF's World Economic Outlook database — to find the countries that actually resemble Turkey's macroeconomic profile closely enough to make the comparison meaningful.
That narrowing exercise lands on six countries: Poland, Czechia, Slovakia, Bulgaria, Hungary, and Romania. These aren't picked because they're neighbours or because they're commonly grouped together in press coverage — they're picked because, on the specific indicators that drive tax and investment outcomes, they're the closest match to Turkey available in the region.
What the Panel Data Shows: FDI Moves Tax Revenue, Not the Other Way Around
Using panel data across Turkey and these six comparators, the analysis applies a standard sequence for this kind of question: unit root tests to confirm the variables behave consistently over time, a cointegration test to check for a genuine long-run relationship between FDI and tax revenue rather than a coincidental correlation, and a Granger causality test to establish which variable is actually driving which.
The causality result is the headline: FDI inflows Granger-cause tax revenue, and the reverse does not hold. In plain terms, a rise in foreign investment today is followed by higher tax revenue later, but a rise in tax revenue does not predict future FDI inflows. That's a one-directional relationship, and it held at a strong significance level. The magnitude is modest but real — a meaningful percentage increase in FDI inflows is associated with a small, statistically significant increase in tax revenue, consistent with what's sometimes called the tax base expansion hypothesis: foreign investment doesn't just show up as its own tax line item, it stimulates broader economic activity that gets taxed too. GDP growth itself also came through as a significant, independent driver of tax revenue across the panel — unsurprising, but a useful confirmation that the model is capturing something real rather than statistical noise.
Across Turkey and six comparable Eastern European economies, FDI inflows are followed by higher tax revenue — but higher tax revenue is not followed by more FDI. The relationship runs one way, which matters for how governments should think about sequencing: attracting investment is the lever, not a side effect of fiscal performance.
The Sector Detail That Matters More Than the Headline Number
The more useful implication for a foreign investor isn't the aggregate finding — it's the qualifier attached to it. Not all FDI generates tax revenue equally. Manufacturing and technology-sector investment tends to generate more downstream tax revenue than sectors like real estate, because it creates longer, more taxable value chains — payroll, supplier contracts, corporate profit — rather than a single asset transaction. This lines up with where Turkey's own investment incentive framework already points: toward manufacturing, R&D, and export-oriented production rather than passive capital.
For Turkey specifically, the research also points at the collection side, not just the investment side. Strengthening transfer pricing enforcement and tax audits on foreign-invested companies matters as much as attracting the investment in the first place — a country that draws in FDI but lets profit-shifting erode the taxable base captures less of the fiscal benefit the data says should be there.
Turkey's low tax-to-GDP ratio relative to Poland or Hungary isn't purely an FDI story — a narrow VAT base and a large informal sector are structural factors that FDI alone won't fix. The panel result says FDI is a genuine, one-directional lever on tax revenue; it doesn't say it's the only one, or that it closes the gap by itself.
What This Means for Foreign Investors
None of this changes the calculus of whether to invest in Turkey — if anything, it reframes the conversation governments and investors are likely to have. Turkey's incentive programmes are already tilted toward higher value-added, export-oriented manufacturing rather than real estate, and this research gives that tilt a fiscal rationale beyond the usual industrial-policy arguments. An investor evaluating Turkey against Poland, Romania, or Hungary as alternative bases should expect that conversation — about transfer pricing documentation, substance requirements, and how “real” the local operation needs to look — to keep sharpening as Turkey works to close its own revenue gap. If you are weighing where that leaves Turkey's headline offer, our guide to Turkey's tax incentives for foreign investors sets out what is actually on the table today.
Turkey's tax-to-GDP ratio trails all six of its closest economic comparators in the region — Poland, Slovakia, Hungary, Czechia, Bulgaria, and Romania. Panel data across all six countries plus Turkey finds FDI inflows are followed by higher tax revenue, not the reverse, with manufacturing and technology investment generating more of that effect than real estate. Expect Turkish tax administration to keep tightening around transfer pricing and substance as this becomes a more explicit policy target.
