Assessing Fiscal Sustainability in Turkey through Cointegration Analysis with Multiple Structural Breaks

Hülya Bulut
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Hülya Bulut: Istanbul Arel University

International Journal of Applied Business and Management Studies, 2020, vol. 5, issue 1, 1-9

Abstract: Nowadays, from the viewpoint of the authorities in the realm of monetary and fiscal policy, it is of importance to reach the determined macroeconomic targets; but at the same time, the long-term maintenance of the economic stability environment, which is positively affected by the achievement of these targets, is also important in terms of sustainable macroeconomic balances. In this context, it is possible to say that the concept of fiscal sustainability is both a prerequisite and a consequence of consistent monetary and fiscal policies. Therefore, the phenomenon of fiscal sustainability is of particular importance in terms of continuity of public activities, in countries using the borrowing method in public financing due to the persistence of budget deficits for many years, like Turkey. Due to fiscal policies turning into unsustainable models, it will be inevitable that increasing borrowing costs will adversely affect economic growth and development, in parallel with possible increases in interest rates and risk premiums. The study is focused on the bivariate approach, which is prominent in the literature, to examine fiscal sustainability. According to this perspective, fiscal sustainability is determined by the status of the cointegration between budget revenues and budget expenditures (primary). Accordingly, for the monthly data of the period from January 2001 to November 2019, the stationarity statuses were examined via Kapetanios' (2005) unit root test with multiple structural breaks, and the existence of the cointegration relationship between the series was examined through Maki's (2012) test method with multiple structural breaks. According to the analysis results, it was determined that there was no cointegration relationship between the general budget revenues and the general budget primary expenditures series. In this context, no fiscal sustainability was observed in Turkey in terms of the period studied.

Keywords: Fiscal sustainability; Unit root test with multiple breaks; Cointegration test with multiple breaks; Budget Constraint Approach (search for similar items in EconPapers)
Date: 2020
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