Current Account Deficit – Budget Deficit – Debt Sustainability Triangle in Turkey: A Data Based Causality Analysis

Year 2020, Volume: 2 Issue: 2, 398 - 409, 13.03.2020

Yasin Acar Muhammed Benli

Abstract

In this study, we examine the
causal patterns among current account deficit, budget deficit, government debt
sustainability, and inflation in Turkey for the period 1975 – 2017. The strong
integration of emerging economies such as Turkey to the global economy depends
on determining the true causal relationship between macroeconomic dynamics that
are considered in this study and the implementation of the related policies
accordingly. Therefore, in order to create inductive causal patterns among the
selected variables, we employ Directed Acyclic Graphs (DAGs) widely used in
causal modeling. The resulting DAG patterns suggest that the current account
deficit has a direct effect on the budget deficit which is a direct determinant of
government debt sustainability. The findings also indicate that inflation is an
indirect determinant of government debt sustainability through its direct
effect on-budget deficit. 

Keywords

directed acyclic graphs, public debt, budget deficit, current account deficit

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