Structural Budget Balance and Fiscal Stance in Turkey

Abstract

Structural Budget Balance and Fiscal Stance in Turkey This study comes up with a measure of the structural budget balance for the Turkish economy between 2006-2010 in order to assess fiscal stance and evaluate the sensitivity of the budget balance with respect to the business cycles. Calculating structural budget balance requires three steps: Firstly, the elasticity of budget items with respect to the gross domestic product is estimated. Secondly potential output and the corresponding output gap series are obtained. Finally, structural budget balance is calculated. The findings of the study can be summarized as follows: The weighted tax elasticity is estimated to be 1.07. We find that the share of primary structural budget surplus in the GDP has decreased in the recent years. On the other hand, fiscal policy can be described as pro-cyclical in 2007, counter-cyclical in 2009 and a cyclical in 2008 and 2010. It is observed that fiscal authority gave more importance to economic stabilization in 2009 due to global financial crises.