Is Fiscal Policy Sustainable in Turkey?

Abstract

The issue of the budget deficit has become one of the main themes of the economic policy implemented in Turkey and backed by the International Monetary Fund (IMF) following the economic crisis of 2001. The main motivation for this study is the question of whether or not the government's financial policy is sustainable and satisfies the government's long-term budget constraint. The empirical analysis is based on tests of whether government expenditure and revenue are cointegrated, considering the economic liberalization period of 1989-2008. The stability of fiscal policy is examined using the Johansen multivariate cointegration method. The findings of the sustainability tests indicate that fiscal policy from the liberalization of the economy up until the 2001 economic crisis was not sustainable.

Keywords:

• budget deficit
• cointegration
• financial policy