GOVERNMENT BUDGET DEFICITS, DEFENCE EXPENDITURE AND INCOME DISTRIBUTION: THE CASE OF TURKEY*

*An earlier version of this paper was presented at the First International Conference on Business, Management and Economics, organized by Yaşar University in Çeşme‐İzmir, on June 2005. I appreciated the comments of participants of the conference. Thanks also to two anonymous referees and to Keith Hartley for their comments and suggestions. Any remaining errors are mine.

Abstract

This paper analyzes the relationship between government budget deficits, defence expenditure and income redistribution among different social‐income groups in Turkey for the period 1965–2003. The analysis was based on a five‐equation vector auto regressive (VAR) model and impulse response functions (IRFs) derived from the VAR model. The study finds that the deficit as a percentage of GNP has a negative and significant impact on transfer payments as a percentage of GNP. The IRFs indicate that shocks to deficit expenditures as a percentage of GNP (DEFGNP) have statistically significant impacts on defence spending as a percentage of GNP (DSGNP), educational expenditures as a percentage of GNP (EDGNP), health expenditures as a percentage of GNP (HEGNP), and transfer payments as a percentage of GNP (TPGNP). The results derived from this study also indicate that there is a positive and significant relationship between defence spending as a percentage of GNP and deficits as a percentage of GNP. Therefore, defence spending is viewed as a tool for transferring income among different social‐income groups and across generations in Turkey for the period 1965–2004. As a result of this, the government can use deficit and defence spending as one of the major instruments to transfer income among different social‐income groups and across generations in Turkey.

*An earlier version of this paper was presented at the First International Conference on Business, Management and Economics, organized by Yaşar University in Çeşme‐İzmir, on June 2005. I appreciated the comments of participants of the conference. Thanks also to two anonymous referees and to Keith Hartley for their comments and suggestions. Any remaining errors are mine.

Keywords:

• Budget deficits
• Defence expenditure
• Income transfers
• VAR models
• Impulse response functions

Jel Codes:

• H00
• I10
• I20
• I30
• C1
• C2

Notes

*An earlier version of this paper was presented at the First International Conference on Business, Management and Economics, organized by Yaşar University in Çeşme‐İzmir, on June 2005. I appreciated the comments of participants of the conference. Thanks also to two anonymous referees and to Keith Hartley for their comments and suggestions. Any remaining errors are mine.