Analysing the Fiscal Sustainability of Central and Local Governments in Turkey

Article Information
Journal: Business and Economics Research Journal
Title of Article: Analysing the Fiscal Sustainability of Central and Local Governments in Turkey
Author(s): Recep Tekeli, Hakan Hotunluoğlu
Volume: 5
Number: 3
Year: 2014
Page: 113-127
ISSN: 1309-2448
Economic crises in recent years, might be seen as a natural result of governments’ unsustainable policies. Fiscal sustainability refers to the ability to maintain the government’s current policies. The aim of this study is with the aid of intertemporal borrowing constraint approach imposed by Hamilton and Flavin (1986) to evaluate the sustainability of fiscal policies implemented in Turkey’s economy, using the data between 1975 and 2012 period. Within the scope of this aim, as an indicator of budget deficit, the PSBR / GDP variable, the ratio of total public sector borrowing requirement to the gross domestic product is used. Also in this study the local authorities were compared with the central government in terms of fiscal sustainability. In the literature it has been proposed that taking into account the structural break in testing for the stationarity would be appropriate techniques to use. Therefore, with the current methods in the literature, years that occured a structural break have been identified and in the context of political economy, the effect of election years on structural break assessed. We could not obtain an evidence to support the strong form of budget deficit sustainability.
Keywords: Budget deficit, fiscal sustainability, structural break, unit root, Turkey
JEL Classification: H61, H62 Full Text