SUSTAINABILITY OF FISCAL POLICY: ESTIMATING A FISCAL REACTION FUNCTION FOR TURKEY

Abstract

In this study a Fiscal policy analysis is used for Turkey between the periods 2006:1-2016:2 to assess the sustainability of fiscal policy. A fiscal reaction function is estimated toanalyze the effects of public debt and fluctuations in GDP on the primary balance. The fiscalreaction function is obtained from the intertemporal government budget constraint in orderto depict the behaviour of government towards the public debt. The results suggest that theprimary budget balance reacts significantly to the previous increase in GDP gap.