Fiscal transfers in Turkey: Do politics matter?

Local fiscal transfer rules in Turkey were revised in 2008, such that, while a significant portion of transfers continued to be based on population size, the remainder was distributed based on other criteria such as the development index. In this paper, we investigate the extent of fiscal fairness in Turkey during the period 2008–2012. We define fiscal fairness by the degree of association of transfers and local spending with the structural and socioeconomic indicators, as opposed to political-party associations. Our empirical analysis reveals that while local fiscal transfers during the investigated period were significantly correlated with the socioeconomic and structural indicators, political factors also played a significant role. Particularly, we find robust evidence that cities where the incumbent party-AKP (Justice and Development Party), who won significantly more votes in the general elections than the main opposition party-CHP (Republican People's Party), received significantly more transfers and fiscal spending than the rest. The evidence also suggests that the metropolitan municipalities held by CHP received significantly more government expenditure than the rest; though less robust than the former. This observation also holds for the metropolitan municipalities held by AKP. Additionally, we observe that cities with metropolitan municipalities that were governed by either the incumbent or the main opposition party, were less fiscally independent than the rest. We also note, however, that given the increasing opacity in data reporting, this study does not account for the large amounts of public funds that are allocated in tenders with special invitees, via public–private partnerships or in the form of social assistance, although they are also likely to constitute a major component of politically-biased fiscal transfers during the study period.