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Cyclical Variation of Fiscal Multiplier in Turkey

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  • Cem Cebi
  • K. Azim Ozdemir

Abstract

This paper aims to investigate cyclical variation of government spending multiplier for Turkey over the period of 1990:q1-2015:q4. We use a time series model, namely local projection method, to estimate the variation in the fiscal multiplier under two different regimes: low and high growth regimes with respect to long-term economic growth. In line with the literature our results confirm that the effectiveness of fiscal policy enhances at times of low growth compared with times of high growth. Turning to the components of government spending, we find that the magnitude of government investment multiplier is larger than that of government consumption multiplier in both regimes. This evidence supports the view that an expansionary fiscal policy via public investment has a profound effect on output compared to public consumption. However, we find an evidence that the influence of government consumption on GDP increases substantially at times of low growth. All in all, we suggest policymakers to use public investment rather than public consumption in order to stimulate the economy during economic expansion and prefer to increase public consumption at the times of economic slow down.

Suggested Citation

  • Cem Cebi & K. Azim Ozdemir, 2016. "Cyclical Variation of Fiscal Multiplier in Turkey," Working Papers 1619, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1619
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    More about this item

    Keywords

    Fiscal Policy; State-dependent fiscal multipliers; Local Projection;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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