Sustainability of Fiscal Policy: An Empirical Examination for Turkish Economy

Year 2014, Volume: 3 Issue: 2, 133 - 137, 01.06.2014

Başak Dalgıç Pelin Varol İyidoğan Eda Balıkçıoğlu

Abstract

Our paper aims to examine the sustainability of Turkish fiscal stance over the period 2006:1-2013:3. The long-run relationship between the tax revenues and the government expenditures are analyzed with regard to the framework of Hakkio and Rush (1991) by employing the bounds testing methodology of Pesaran, Shin and Smith (2001) which test the cointegration in terms of whether the series are I(0), I(1) or mutually cointegrated. To investigate the degree of fiscal sustainaibility, we estimate a long-run ARDL model. We find evidence of weak sustainability condition since the empirical results reveal the existence of cointegration relation though the long-run coefficient is found to be smaller than one.

Keywords

Fiscal Balance, Fiscal Sustainability, Cointegration

References

•  Akçay O.C., Alper C.E., Özmucur S. (2001), Budget Deficit, Inflation and Debt Sustainability: Evidence from Turkey, 1970-2000, Ins. Inflation and Disinflation in Turkey, Eds. Kibritçioğlu A., Rittenberg L., Selçuk F., pp. 77-97.
•  Budina N., Wijnbergen S.V. (2009), Quantitative Approaches to Fiscal Sustainability Analysis: A Case Study of Turkey since the Crisis of 2001, The World Bank Economic Review, 23(1), pp. 119-140.
•  Hakkio, C.S., Rush, M. (1991), Is the Budget Deficit too Large?, Economic Inquiry, 29,pp. 429-445.
•  Hamilton J.D., Flavin M. A. (1986), On the Limitations of Government Borrowing: A Framework for Empirical Testing, American Economic Review, pp. 808-816.
•  Kalyoncu H. (2005), Fiscal Policy Sustainability: Test of Intertemporal Borrowing Constraints, Applied Economics Letters, 12, pp. 957-962.
•  Kia A. (2008), Fiscal Sustainability in Emerging Countries: Evidence from Iran and Turkey, Journal of Policy Modeling, 30(6), pp. 957-972.
•  Kremers J.M. (1989), U.S. Federal Indebtedness and the Conduct of Fiscal Policy, Journal of Monetary Economics, pp. 219-238.
•  Kuştepeli Y., Önel G. (2005), Fiscal Deficit Sustaianbility with a Structural Break: An Application to Turkey, Review of Social, Economic and Business Studies, 5(6), pp. 189-208.
•  Özatay F. (1997), Sustainability of Fiscal Deficits, Monetary Policy and Inflation Stabilization: The Case of Turkey, Journal of Policy Modeling, 19(6), pp. 661-681.
•  Payne J.E., Mohammadi H., Cak M. (2008), Turkish Budget Deficit Sustainability and the Revenue-Expenditure Nexus, Applied Economics, 40, pp. 823-830.
•  Pesaran M.H., Shin, Y., Smith R.J. (2001),Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16, pp. 289-326.  Wilcox D. W. (1987), The Sustainability of Government Deficits: Implications of the Present Value Borrowing Constraint, Board of Governors of the Federal Reserve System Working Paper, 77.