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Effects of Fiscal Policy Uncertainty on Turkish Economy

Author

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  • Suleyman Kasal
  • Sebnem Tosunoglu

Abstract

Uncertainty is one of the most important issues for economic actors. Uncertainty about tax, expenditure and debt policy has an impact on the economy. The central question in this study asks how fiscal policy uncertainty affects the Turkish economy. First, we quantify Turkey's fiscal policy uncertainty index based on volatility measurements between 1998Q1 and 2020Q4. This index represents major fiscal, economic and political incidents in Turkey. Next, we analyse the effects of fiscal policy uncertainty on the Turkish economy using a VAR model. Our study finds that fiscal policy uncertainty shocks have detrimental and long-lasting effects on the Turkish economy. The results indicated that a positive standard deviation shock in fiscal policy uncertainty decreases the confidence, output and consumption. The findings of this study reveal critical fiscal policy implications for decision-makers. These findings imply that reducing Turkey's fiscal policy uncertainty is a critical policy priority for the business cycle fluctuations.

Suggested Citation

  • Suleyman Kasal & Sebnem Tosunoglu, 2022. "Effects of Fiscal Policy Uncertainty on Turkish Economy," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(6), pages 538-566.
    • Handle: RePEc:prg:jnlpep:v:2022:y:2022:i:6:id:811:p:538-566
    DOI: 10.18267/j.pep.811
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    References listed on IDEAS

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    1. Sylvain Leduc & Zheng Liu, 2012. "Uncertainty, unemployment, and inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep17.
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    3. Havvanur Feyza Erdem & Rahmi Yamak, 2016. "Measuring The Optimal Macroeconomic Uncertainty Index For Turkey," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 61(210), pages 7-22, July - Se.
    4. Alessio Anzuini & Luca Rossi, 2021. "Fiscal policy in the US: a new measure of uncertainty and its effects on the American economy," Empirical Economics, Springer, vol. 61(5), pages 2613-2634, November.
    5. Luca Agnello & Ricardo M. Sousa, 2013. "Political, Institutional, and Economic Factors Underlying Deficit Volatility," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 719-732, September.
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    More about this item

    Keywords

    Fiscal policy uncertainty; business cycle; VAR; Turkey;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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