Constitutional Economics, Fiscal Policy Rules, and The Case of Turkey

Discretionary fiscal policies have arisen because of dominant Keynesian economic policies from 1930’s to 1970’s. Public expenditures intensively and excessively increased in order to ensure macroeconomic stability during this period. Many countries faced the emergence of macroeconomic problems such as affectively using public resources, budget deficit and inflation. As a result, Keynesian economic policies and the stagnation experienced in following high inflation years have faced economies with stagflation process in the 1970’s. However, Keynesian approach did not solve the problem. Therefore, new economic approaches developed for solving the problem. One of the new economic approaches was Constitutional Economic Theory. The theory includes economic policy rules including fiscal rules as well as monetary rules. Fiscal rules have been one of the main stabilization tools in obtaining budget and public finance balance. Many countries have implemented specific fiscal policy rules to struggle with economic instabilities, budget deficits and public financial imbalances. A specific form of fiscal policy rule has been started to implement in Turkey since 1999. Several fiscal policy rules have been adopted in Turkey’s public financial management system as part of the economic program which was conducted with the collaboration of IMF since 1999. These rules are called as implicit fiscal policy rules. These fiscal rules have become a draft legal text in 2010 as “Fiscal Rule Draft Law”. Although the fiscal rule was planned to start the application period as of 2011, it is delayed to fiscal year 2012 because of some economic reasons.