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Expansionary Fiscal Contraction Hypothesis: The Case Of Turkey


  • Levent Erdogan

    () (Anadolu University)


Recently both empiricial and theoretical studies focus on expansionary fiscal contraction hypothesis (EFC), according to which fiscal contractions stimulate consumption and also lead to an increase in aggregate demand and output. In this paper the validity of the EFC hypothesis is tested for Turkey from 1987 to 2006 by means of structural vector autoregressive (SVAR) models. Impulse response analysis is carried out by imposing long-run restrictions on Vector Error-correction Models (VECM). Structural shocks in government expenditure, terms of trade and income are decomposed into permanent and transitory components. Long-run identifying restrictions are imposed on the effects of permanent shocks. Empirical analysis indicates that fiscal contractions are not expansionary in Turkey. Based on the findings, terms of trade and supply shocks seem to have more explanatory effect on consumption expenditure.

Suggested Citation

  • Levent Erdogan, 2007. "Expansionary Fiscal Contraction Hypothesis: The Case Of Turkey," Anadolu University Journal of Social Sciences, Anadolu University, vol. 7(2), pages 117-132, December.
  • Handle: RePEc:and:journl:v:7:y:2007:i:2:p:117-132

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    References listed on IDEAS

    1. Sharma, Arun & Stafford, Thomas F., 2000. "The Effect of Retail Atmospherics on Customers' Perceptions of Salespeople and Customer Persuasion:: An Empirical Investigation," Journal of Business Research, Elsevier, vol. 49(2), pages 183-191, August.
    2. David R. Bell & James M. Lattin, 1998. "Shopping Behavior and Consumer Preference for Store Price Format: Why “Large Basket” Shoppers Prefer EDLP," Marketing Science, INFORMS, pages 66-88.
    3. Belk, Russell W, 1975. " Situational Variables and Consumer Behavior," Journal of Consumer Research, Oxford University Press, vol. 2(3), pages 157-164, December.
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    More about this item


    Fiscal Contraction; Consumption; Structural VAR; Fiscal Policy; Government Expenditure;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other


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