Interjurisdictional Tax Performance within a Country: Cluster-Specific Panel Estimation of Provincial Tax Capacity, Effort, and Collection Effectiveness in Türkiye (2007-2022)

Domestic revenue mobilisation depends not only on the size of the tax base but also on how effectively jurisdictions convert taxable capacity into realised collections. This paper develops a subnational diagnostic framework for Türkiye by jointly measuring tax capacity, tax effort, and tax collection effectiveness for 81 provinces over 2007–2022. To address structural heterogeneity across jurisdictions, the analysis proceeds in two integrated stages. First, we apply hierarchical clustering to group provinces into relatively homogeneous clusters based on economic structure, demographic pressure, and fiscal characteristics, producing an interpretable typology for differentiated policy targeting. Second, we estimate cluster-specific tax-capacity functions using fixed-effects panel regressions. Hausman tests reject random effects, indicating that time-invariant provincial heterogeneity is correlated with regressors. Diagnostics further suggest heteroskedasticity, serial correlation, and cross-sectional dependence, so inference relies on Driscoll-Kraay standard errors. Tax effort is computed as the ratio of actual tax burden to predicted capacity, enabling consistent comparisons of over- and under-performance across structurally different provinces. Results show that (i) tax capacity is highly uneven and shaped by industrialisation, openness, and urbanisation; (ii) determinants of capacity are cluster-specific, cautioning against a single national capacity function; and (iii) provinces with similar capacity can display markedly different effort and collection outcomes, highlighting the role of administrative capacity and compliance. The proposed three-dimensional taxonomy provides a practical basis for fiscal equalisation and transfer design by separating structural constraints from effort and collection gaps, offering a replicable template for countries with pronounced regional disparities.