A TIME-VARYING ANALYSIS OF THE PUBLIC DEBT SUSTAINABILITY IN TURKEY WITH FLEXIBLE LEAST SQUARES TECHNIQUE

Abstract

This paper gauges the sustainability of public debt in Turkey from a time-varying perspective. The time-varyingestimation techniques exhibit the whole portrait of intertemporal variations in the sustainability of publicdebt. We estimated a fiscal reaction function using flexible least squares method to reap this benefit of timevarying models. This method is a practical alternative to the other approaches in the literature. The resultssuggest that public debt sustainability has been established in Turkey through a transformation in the early2000s, but thereafter the fiscal performance has waned gradually. In recent years, the fiscal reactionparameter has hit negative levels after some 20 years of sturdiness. This finding indicates that the public debtis likely to become unsustainable should no necessary measures are promptly implemented. Nevertheless,the Covid – 19 pandemic appears to be an unexpected and important source of an impediment for thegovernment to achieve short-run stabilisation goals by skyrocketing social expenditures and transfers.