Fiscal Adjustments and Stimuli: Turkish Case

Abstract

We examine the fiscal adjustment and stimulus episodes in Turkey by using data from 1986 to 2012. After identifying 5 fiscal adjustment and 3 fiscal stimulus episodes, we find that the fiscal adjustments relied on revenue increases are neither successful nor expansionary, while the two fiscal adjustments based on spending cuts are both successful and expansionary. Our results seem to suggest that expectation channel is important in explaining expansionary fiscal adjustments while the changes in trade balance are not. We think that Turkish case clearly shows that fiscal adjustments can be expansionary. However the contributions of several other important factors behind the episodes should also be noted. Successful and expansionary fiscal adjustments when combined with favourable political and economic conditions may not be associated with political costs. One of the fiscal stimulus episodes is expansionary while the remaining two are not.

Keywords

• Fiscal policy and adjustments in Turkey,fiscal stimuli,expansionary adjustments,successful adjustments

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