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Public deficit sustainability, public debt and monetization in an endogenous growth model: an application for Turkey

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  • Ererdem, Ozgür Kaan
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    Abstract

    This paper analyzes the long term sustainability of budgetary policies in a general equilibrium framework. The analysis is based on an overlapping generations model where the government fixes a tax rate on factor incomes, conducts unproductive and productive public spendings and determines the weight of public bonds issuance and monetization in deficit financing. A budgetary rule setting the economy on a balanced growth path is considered sustainable. The model is used to evaluate the sustainability of Turkish budgetary policies since 1980. The results show that Turkish budgetary policies became sustainable in the period 1999-2007. Alternative policy simulations show that Turkey could have conducted more expansionnist budget policies without risking sustainability during this period. The model shows also that the negative impact of inflation tax on private capital accumulation is greater than the impact of factor income tax.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/4341/1/Ererdem_PET10.pdf
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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4341.

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    Date of creation: Sep 2010
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    Handle: RePEc:dau:papers:123456789/4341

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    Keywords: Turkey; Budgetary policies;

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    1. Futagami, Koichi & Shibata, Akihisa, 1998. "Budget Deficits and Economic Growth," Public Finance = Finances publiques, , vol. 53(3-4), pages 331-54.
    2. Real Arai, 2011. "Productive Government Expenditure and Fiscal Sustainability," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(4), pages 327-351, December.
    3. Rankin, N. & Roffia, B., 1999. "Maximum Sustainable Government Debt in the Overlapping Generations Model," The Warwick Economics Research Paper Series (TWERPS) 521, University of Warwick, Department of Economics.
    4. Voyvoda, Ebru & Yeldan, Erinc, 2005. "Managing Turkish debt: An OLG investigation of the IMF's fiscal programming model for Turkey," Journal of Policy Modeling, Elsevier, vol. 27(6), pages 743-765, September.
    5. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
    6. Fugazza, Marco & Jacques, Jean-François & Levent, Haluk & Rebeyrol, Antoine, 2003. "La croissance économique turque entre 1980 et 1995 s’explique-t-elle par les dépenses publiques, le travail informel ou le capital humain ?," Economics Papers from University Paris Dauphine 123456789/6261, Paris Dauphine University.
    7. Yesim Gurbuz & Thomas Jobert & Ruhi Tuncer, 2007. "Public debt in Turkey: evaluation and perspectives," Applied Economics, Taylor & Francis Journals, vol. 39(3), pages 343-359.
    8. O. Cevdet Akcay & C. Emre Alper & Suleyman Ozmucur, 2001. "Budget Deficit, Inflation and Debt Sustainability: Evidence from Turkey(1970-2000)," Working Papers 2001/12, Bogazici University, Department of Economics.
    9. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
    10. Yakita, Akira, 2008. "Sustainability of public debt, public capital formation, and endogenous growth in an overlapping generations setting," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 897-914, April.
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