The Effects of Fiscal Policy Rules on Fiscal Balance: The Perspectives on Turkish Economy

Year 2008, Volume: 8 Issue: 8, - , 01.12.2008

Hayal Şimşek , Ayşe Bekâr

Abstract

In public finance theory fiscal rules have been one of the main stabilization tools in obtaining budget balance and public finance balance. Many developed and developing countries have implemented specific fiscal policy rules so as to struggle with domestic distortions in economy. Balanced budget or deficit rules, borrowing rules and debt or reserve rules have been the most important rules that have been implemented in specific countries. A fiscal rule should ensure the solvency of the state, contribute to sustainability of fiscal policies by avoiding pro-cyclical behavior of the fiscal policy instruments and be simple and credible so as to be implemented effectively. In Turkish economy a specific form of a fiscal rule has been implemented since 2000 economic crisis. During 2000-07 period the Governments used a specific form of fiscal policy rule –non-interest budget surplus of 6,5 percent- so as to reduce instability. Although strict fiscal policies based on this target helped public finance balance to improve, they led private investments to decrease and unemployment rates to increase in the long run.

Keywords

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