Türkiye has one of the world’s highest tax burdens on cars. Why not reduce it? At first glance, fixing this seems easy—until we confront the scale of the rent-seeking economy. The current tax burden, which increased as the Special Consumption Tax (SCT, or ÖTV), initially introduced as a “temporary” measure after the devastating August 17 earthquake, became permanent, reflects the country’s structural problems.

We Are at the Top of the World Rankings

Together with Denmark, Türkiye is at the very top in terms of the total tax burden on automobiles. Depending on the bracket, the SCT ranges from 80 to 220 percent. When another 20 percent VAT is added, a car with a pre-tax price of 100 lira can cost more than 200 lira. In 2025, SCT revenue from automotive sales reached a record of approximately TRY 788 billion, including TRY 132 billion in December alone. In the words of the president of the Automotive Manufacturers Association, “all cars are now in tax brackets of 80 percent or higher.”

At first glance, the solution looks simple: reduce SCT, leave more money in consumers’ pockets, bring vehicle prices down to normal levels, expand the market, and perhaps eventually increase tax revenues. Industry representatives have been saying this for years. It seems logical. But what would actually happen if a government attempted it? Let us unpack the question layer by layer, following the chain of reasoning I developed in an earlier essay.

Layer One: The Treasury’s Dependence

SCT revenue of TRY 788 billion is an indispensable budget item. Any move that reduces it directly affects the Treasury’s fiscal balance. But the problem is more structural than quantitative. Türkiye’s tax system relies excessively on indirect taxes—taxes collected on consumption, such as SCT, VAT, and fuel taxes. Rather than expanding the tax base, reducing informality, or achieving greater fairness in income taxation through structural reform, it is far easier to impose extremely high indirect taxes on a few products.

That convenience traps the system in precisely the pattern I criticized in my previous article: sacrificing long-term productivity for short-term revenue. The automotive SCT is one of the state’s mechanisms for “easy money,” alongside tax amnesties, land and zoning rents, and expansions of cheap credit. They follow the same logic: avoid structural reform and manage the tensions created by the existing system through short-term interventions.

Layer Two: The Current-Account Trap

High SCT is not only a revenue instrument; it also functions as a brake on imports. Although Türkiye is a net exporter of automobiles, consumer demand for imported vehicles remains strong. Cut SCT and sales will surge, but a substantial part of the increase will involve imports. Reducing the tax could therefore widen the current-account deficit, create upward pressure on the exchange rate, and open additional channels of inflation.

A supposedly “simple” tax cut thus sets off reactions throughout the macroeconomic system. Even dismantling a single form of rent collides with other elements of the existing order. This is a concrete expression of the “everything is interconnected” argument in my previous essay.

Layer Three: Those Who Defend the Rents

Now things become even more interesting. Over time, high automotive taxes create their own constituency of defenders.

One of the main reasons used-car prices are so high in Türkiye is the heavy taxation of new cars. When a new car is so expensive, the price floor for used vehicles rises as well. Hundreds of thousands of dealers who make a living in the used-car market know that a cut in SCT would reduce the value of their inventories. This constituency overlaps with what I described as “informal networks” in my previous article. It need not be formally organized to wield considerable influence in local politics.

Domestic manufacturers might likewise struggle to compete with imported cars in a lower-tax environment. High SCT also acts, in a sense, as a barrier protecting local producers: survival behind a tax wall rather than through productivity gains.

Layer Four: Everyone’s Loss Is Tangible, While Their Gain Is Abstract

Yet the most striking obstacle would arise neither from the industry nor from the Treasury, but from citizens themselves.

In Türkiye, a car has become an investment instrument rather than merely a means of transport. In an environment of high inflation and continuous depreciation of the lira, people buy cars believing they are “preserving their money.” Often they have been right. For years, used-car prices stayed extraordinarily high, and at times used cars even sold for more than new ones.

Suppose SCT were suddenly cut substantially and new-car prices fell by 30–40 percent. What would happen? Someone holding a 2022-model car would lose a significant part of their perceived wealth overnight. A vehicle they could previously have sold for TRY 2 million might now fetch only TRY 1.3 million. Their next car would indeed be cheaper, but that is a future benefit. The loss is immediate, here and now, and felt directly in their pocket.

This is where loss aversion, one of the most robust findings in behavioral economics, comes into play. People experience more pain from a loss than pleasure from a gain of equal magnitude. The prospect of a next car costing TRY 300,000 less does not offset the pain of seeing the present car lose TRY 700,000 in value. Besides, not everyone will buy another car immediately. The loss is immediate and certain; the gain is later and uncertain.

Türkiye has more than 27 million registered vehicles. Most of their owners regard the market value of their cars as part of their wealth. Cutting SCT would immediately reduce the wealth perceived by millions. Many of these people could, in the terminology of my previous essay, act with “individual rationality” and oppose the change. Just like taxpayers waiting for amnesties, individual citizens become stakeholders with an interest in preserving the current arrangement.

Here an important insight emerges. Over time, high automotive taxes turn each new car owner into a stakeholder in the very system that imposed the burden. When buying a car, people complain about the high tax. After buying it, however, they are pushed toward wanting the same high tax to continue, because the tax wall protects the resale value of the vehicle they purchased. This is almost a textbook illustration of my earlier argument that “individual rationality produces collectively irrational outcomes.”

Layer Five: The Winners Are Quiet, the Losers Are Loud

This mechanism also sends a powerful signal to politicians. Before a government that reduces SCT can announce, “We made cars cheaper,” it is likely to face millions protesting, “You reduced the value of our cars.” These reactions need not be organized. They crystallize immediately on social media, in coffeehouses, and at car dealerships.

Those who would benefit from a tax cut—people who cannot yet afford a car, particularly first-time buyers—are quieter, more dispersed, and less politically visible. Those who stand to lose from reform are numerous, vocal, and facing a concrete loss. The beneficiaries may be even more numerous, but their voice is weaker and the benefit is more abstract and spread over time.

This is the “collective action problem” identified by Olson. Small groups with concentrated interests can prevail over much larger groups with diffuse interests, especially in a society like ours, where trust and collective organization are as weak as I described in the previous essay.

Layer Six: Reform Cannot Work Without Trust

Suppose a government resolves to take this step despite all these obstacles. It says, “I will reduce SCT, raise revenue elsewhere, and protect you.” According to a 2025 Pew survey, only 14 percent of adults in Türkiye say “most people can be trusted,” while 84 percent believe caution is necessary.

In such a climate, would the industry trust a government’s promise to pursue predictable taxation? Who would believe a state that grants a tax amnesty roughly every 33 months and changes tax bases by decree? The moment a tax cut is announced, consumers postpone purchases (“Perhaps it will fall even further”), dealers hold inventories, and importers rush to place orders. Each actor seeks to maximize short-term interests. The result is precisely the chaos that arises in the absence of the practice of “sitting down and negotiating” that I illustrated with Ireland in the previous essay.

Short-Termism: A Cultural Constant or a Rational Adaptation?

A common pattern underlies all these layers. Almost everyone in Türkiye—the state, firms, and individuals—places short-term interests ahead of long-term gains. One could argue that this short-termism has cultural roots. The migrant and nomadic strands of our cultural history indeed involved short cycles: seasonal movement, decisions based on the immediate condition of livestock, and maintaining mobility rather than investing in fixed infrastructure. Where uncertainty is high and property rights are weak, long-term planning is costly and its returns unclear. Ottoman practices such as confiscation of property, the timar system’s failure to develop into individual property rights, and the limited possibilities of intergenerational wealth transfer outside waqf institutions formed arrangements that penalized long-term horizons. But an important distinction is necessary: claiming that short-termism is a cultural “essence” is very different from arguing that institutions make short-term behavior rational. The first is deterministic and offers no way out; the second can be changed.

Short-termism in Türkiye cannot be attributed to cultural inheritance alone. More importantly, repeated disruptions over the past century have meant that long-term planning has rarely paid off: the coups of 1960, 1971, and 1980; the crises of 1994 and 2001; the currency shock of 2018; and high inflation after 2021. Add a tax amnesty approximately every 33 months. Ask someone living through all that to make a ten-year plan, and they may reasonably reply, “Which ten years?”

Our problem cannot simply be explained by an inherently short-term orientation among Turkish people. The deeper source is that investment in the long term has repeatedly been punished. The rules keep changing, property rights are uncertain, inflation erodes savings, and the legal environment is unpredictable. Under these conditions, short-termism is not a character flaw; it is a thoroughly rational adaptation.

The South Korean example is instructive again. In the 1960s, Koreans were reportedly portrayed in World Bank accounts as a short-term-oriented society with little inclination to save or think ahead. Their Confucian heritage was then treated as a “cultural barrier to modernization.” Thirty years later, the same heritage was reinterpreted as the “cultural foundation of the Korean miracle.” What changed was not simply culture, but the institutional structure. The state signaled, “Invest in the long term and you will be rewarded; act only for the short term and you will fail,” and people adapted. Turkish entrepreneurs in Germany can make long-term business plans for the same reason: institutions reward that behavior. The same people, with similar cultural backgrounds, behave differently under different incentives.

But this adaptation has a dangerous feature: over time, it becomes internalized and begins to present itself as culture. Saying “This is simply how we are” legitimizes the existing arrangement. As everyone acts for the short term, institutions produce short-term policies that make short-term behavior even more rational. The vicious circle is complete.

One Case, the Entire System

Let us return to automobile taxation and examine all the layers together.

The Treasury depends on this tax because structural tax reform remains elusive. Structural reform is elusive because it threatens the interests of rent beneficiaries. They resist because the existing order produces tangible gains for them. Citizens resist because their cars’ values depend on the same system. Citizens think in the short term because they do not trust the state. They distrust the state because the rules continually change. Rules continually change because politics is short-termist. Politics is short-termist because voters respond to short-term interests. Society favors the short term because planning for the long term has been repeatedly punished.

That is why an apparently “simple” reform—reducing or abolishing a tax and bringing the overall automotive tax burden to a reasonable level—ends up conflicting with the entire system. The problem we want to solve exists within a self-protecting equilibrium. Each actor behaves rationally as an individual, but the collective outcome is irrational. Over time, this equilibrium develops its own defenders. Everyone who enters the system—someone buying a car, hoping for the next amnesty, or receiving a share of zoning-related rents—unwittingly acquires an interest in its continuation.

The Gravity of Rent-Seeking

We might call this dynamic “the gravity of rent-seeking.” Just as gravity pulls objects toward the ground, Türkiye’s rent-seeking structure pulls every actor—the state, businesses, and individuals—toward the existing order. Moving upward requires energy to resist that pull. For most actors, however, spending that energy is not rational: the reward for moving up is uncertain, while the short-term cost of giving in to gravity is low.

This metaphor brings together many of the problems discussed in my previous essay. Why do SMEs remain in low-value-added production? Because the rewards for upgrading are weak, while the cost of staying put—with subsidies, amnesties, and low productivity—is low. Why do companies not collaborate on R&D? Because sharing knowledge requires trust, and trust is lacking. Why does the state avoid structural reform? Because its immediate political costs outweigh its long-term social benefits. Why do citizens defend the existing order? Because losses are concrete and immediate while gains are abstract and deferred. All are subject to the same gravity.

Layer Seven: The Trap We Built for Ourselves

The first six layers concerned internal dynamics. There is a seventh layer involving the international environment. No international rule forced Türkiye to impose such high automotive taxes. Türkiye could, in principle, reduce SCT equally for all vehicles from 80 percent to 40 percent, to 20 percent, or even to zero. A non-discriminatory reduction would not in itself violate WTO rules, GATT, or the Customs Union. As long as domestic and imported products are treated equally, countries can set their internal tax rates. We could have chosen not to impose this tax at such a high level in the first place. It is our own choice—and our own trap.

What international rules constrain is the possibility of escaping the trap selectively—for example, imposing 40 percent SCT on domestic cars but 80 percent on imports. That is not permitted. Article III of GATT prohibits applying internal taxes more heavily to imported products than to comparable domestic products. The WTO Agreement on Trade-Related Investment Measures (TRIMs) also restricts certain local-content requirements. Brazil attempted something similar through its INOVAR-AUTO program, providing tax advantages linked to domestic production processes, and its measures were found inconsistent with WTO obligations. India faced disputes over solar panels, and Canada over renewable energy.

How, then, do the United States and the European Union pursue comparable policies? The US Inflation Reduction Act includes local-content conditions, which many specialists regard as potentially inconsistent with GATT. Yet the United States has proceeded in a context where the WTO Appellate Body has been paralyzed since 2019 and American economic power carries considerable deterrent force. The EU, meanwhile, advances “Made in Europe” ambitions partly through public procurement, which is treated differently under GATT Article III.

The international dimension therefore prevents us from lowering SCT only for locally produced cars in order to avoid widening the current-account deficit. The underlying principle is reasonable: if you cut an internal tax, do so on a non-discriminatory basis and use ordinary policy instruments. Had we set this tax at a reasonable level from the start, we would not be having this debate. Denmark also imposes high automobile taxes, but its tax structure is more consistent and predictable, and its fiscal system makes much greater use of direct taxation. Instead of broadening the tax base, Türkiye chose the path of “easy revenue” by imposing extraordinary burdens on a few products—and then became dependent on them.

Escaping Gravity

Is there a way out of this cycle? In my previous article, I suggested “starting at a smaller scale.” Now that we can see both the domestic and international dimensions, the question becomes clearer.

Reducing SCT is technically possible. No international rule prevents a non-discriminatory cut. But the six internal layers described above—budget dependence, current-account concerns, the resistance of rent beneficiaries, citizens’ loss aversion, political costs, and a lack of trust—stand in the way. A selective reduction that favors domestically produced cars would, in turn, conflict with international trade rules. The way forward is therefore neither an indiscriminate overnight cut nor selective favoritism. It is to transform the system gradually through ordinary, non-discriminatory policy instruments.

What does that mean in practice? First, broaden the tax base. Türkiye is forced to collect so much through indirect taxes partly because direct taxes—on income, wealth, and property—are not collected as effectively or fairly as they should be. Informality, rent-seeking, and tax injustice lie behind this problem. Before reducing automotive SCT to a reasonable level, we must strengthen that foundation. Ending the budget’s dependence on a handful of indirect taxes is central to addressing the structural problems.

Second, support productive capacity with non-discriminatory instruments. Türkiye can support R&D conducted within its borders, technology investment, and vocational education. These mechanisms already exist and can be designed consistently with WTO rules. The task is to concentrate support on firms that develop technology and increase scale, rather than distributing a little to everyone.

Third, use public procurement as an instrument of industrial policy. Türkiye is not a party to the WTO Government Procurement Agreement, leaving room for policies that favor domestic goods in certain public purchases, subject to other applicable obligations. The United States has its “Buy American” framework, while the EU pursues “Made in Europe” initiatives. Türkiye could likewise create demand for domestic production through public fleets, municipal buses, and official vehicles. This is a policy of creating legitimate demand, distinct from discriminatory internal taxation.

The hardest part is that all these measures require trust. The state must be able to say, “We are reducing SCT, but will balance the budget with other taxes,” actually follow through, and persuade society that it will do so. Without trust, even gradual reform fails: everyone asks whether the rules will change again and continues to act in the short term.

Conclusion

The seemingly “small and simple” issue of automobile taxation is a miniature of Türkiye’s structural problems. Most strikingly, this tax was not imposed from outside. No international rule, agreement, or institution forced Türkiye to set some of the world’s highest automotive taxes. That was our own decision—and our own trap. The outside world did not object when we built it, but international rules constrain us when we try to leave it through selective, preferential measures. We have to rely on normal policy instruments. Had we used them in the first place, we might not be here.

Türkiye’s problem has never been a single policy mistake. It is a system of mutually reinforcing elements that hold one another in equilibrium. The system was built step by step, choosing the “easy” option each time. Changing it now is almost like defying gravity. It is not impossible, but it requires sustained energy, consistency, and continuity. The first source of that energy is to begin building trust, even on a small scale.