Estimating Bohn's Fiscal Sustainability Model with Temporal Variation: Evidence from Turkey

Cansin Kemal Can

Prague Economic Papers, 2023, vol. 2023, issue 1, 61-83

Abstract: This study aims to estimate a dynamic fiscal reaction function in a state-space setting to obtain time-varying reaction parameters for appraising the evolution of public debt sustainability in Turkey. The data set used for estimation is the longest for Turkey in the literature. Succinctly speaking, this function quantifies the corrective fiscal efforts exerted to preserve the stability of public debt. The time-varying estimation findings in this study suggest that the recent fiscal history of Turkey can be divided into two subperiods in terms of fiscal stability. Before the mid-1990s, no systematic fiscal response existed to restore the stability of public debt, whereas after the mid-1990s, a remarkable effort was evidenced by the positive fiscal reaction parameters. Notwithstanding some 20 years of strong positive reactions, the former performance appears to be far-off in recent years, and the strength of fiscal reaction has waned gradually, which is perturbing for the future course of fiscal sustainability.

Keywords: Debt sustainability; fiscal reaction function; state-space model (search for similar items in EconPapers)
JEL-codes: C32 E62 H63 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.18267/j.pep.822

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