MONETARY VS FISCAL DOMINANCE IN TURKISH PUBLIC FINANCES

Year 2022, Volume: 10 Issue: 2, 1 - 19, 30.12.2022

Cansın Kemal Can

https://doi.org/10.14514/beykozad.1063904

Abstract

The interactive roles of monetary and fiscal policies are represented by two competing theories in the literature. The advocates of the first theory, the monetarist view, argue that the fiscal authorities tune the primary balance in an attempt to preserve the fiscal solvency for each price level. On the contrary, the proponents of the new approach assert that the fiscal authorities are able to set primary surplus without making a binding commitment to restore solvency. In this study, the purpose is to figure out which approach is valid for Turkish public finances. To accomplish this objective, we run a model based on Bohn (1998) using the Auto Regressive Distributed Lag (ARDL) method so as to determine the type of regime prevalent in the Turkish economy. Besides, we run a Toda-Yamamoto type causality analysis to detect the direction of causality among public debt and primary balances. The results from both analyses reveal that the Turkish public finances are characterised by monetary dominant regimes which indicate that the fiscal solvency is restored by primary balance alterations by a set of active fiscal policy actions.

Keywords

ARDL, Toda-Yamamoto, Monetary Dominance

TÜRK KAMU MALİYESİNDE PARASAL VE MALİ BASKINLIK

Abstract

Para ve maliye politikalarının etkileşimli rolleri, literatürde iki teori tarafından temsil edilmektedir. İlk teori olan monetarist görüşün savunucularına göre, mali otorite her bir fiyat seviyesi için bütçe dengesini korumak amacıyla faiz dışı dengeyi optimize etmeyi amaçlarlar. Aksine, yeni yaklaşımın savunucuları, mali otoritelerin ödeme gücünü yeniden sağlamak için bağlayıcı bir taahhütte bulunmadan faiz dışı fazla verebildiğini ve böylelikle para politikası araçlarını mali amaçlar için kullanılabileceğini savunmaktadır. Bu çalışmada amacımız, Türk kamu maliyesi için hangi yaklaşımın geçerli olduğunu ortaya çıkarmaktır. Bu amaca ulaşmak için, Türkiye ekonomisinde geçerli olan rejim türünü belirlemek için ARDL yöntemini kullanarak Bohn (1998) temelli bir model çalıştırıyoruz. Ayrıca kamu borçları ve faiz dışı dengeler arasındaki nedenselliğin yönünü tespit etmek için Toda-Yamamoto tipi nedensellik analizi yapılmıştır. Her iki analizden elde edilen bulgularımız, Türk kamu maliyesinin, mali ödeme gücünün bir dizi aktif maliye politikası eylemiyle faiz dışı denge değişiklikleriyle restore edildiğini gösteren parasal baskın rejimlerle karakterize olduğunu ortaya koymaktadır.

Keywords

Mali baskınlık, Parasalcı Baskınlık, ARDL, Toda-Yamamoto

References

• Alesina, A., Guido Tabellini (1988), Credibility and politics, European Economic Review, Volume 32, Issues 2–3, 1988, Pages 542-550
• Bohn, H. (1995). The Sustainability of Budget Deficits in a Stochastic Economy. Journal of Money, Credit and Banking, 27(1), 257-71.
• Bohn, H. (1998). The Behavior of U. S. Public Debt and Deficits. The Quarterly Journal of Economics, 113(3), 949-963.
• Blanchard, O. (2004) Fiscal Dominance and Inflation Targeting: Lessons from Brazil Working Paper: 10389
• Catão A.V, Marco E. Terrones (2005), Fiscal deficits and inflation, Journal of Monetary Economics, Volume 52, Issue 3, 2005, Pages 529-554
• Fratianni, M, Franco Spinelli (2001) Fiscal Dominance and Money Growth in Italy: The Long Record, Explorations in Economic History, Volume 38, Issue 2, Pages 252-272
• Gadea, Marìa Dolores & SabatÃ, Marcela & Sanz, Isabel, 2012. "Long-run fiscal dominance in Argentina, 1875–19901," Financial History Review, Cambridge University Press, vol. 19(3), pages 311-335
• Gelsefidi, P , Seyed Hamid & Tayyebnia , Ali & Mehrara , Mohsen & Amirian , Roodabeh, 2018. "Fiscal versus Monetary Dominance: Evidence from Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 13(3), pages 375-400
• Gruben, William C. and Welch, John H (2010)., Is Tighter Fiscal Policy Expansionary Under Fiscal Dominance? Hypercrowding Out in Latin America. Contemporary Economic Policy, Vol. 28, Issue 2, pp. 171-181
• Lili Li, Hanyu Tan & Hongmei Zhang (2020) Government Finance and Money Creation in China: An MMT Perspective, The Chinese Economy, 53:4, 329-341
• Pesaran, M.H. (1997): The Role of Economic Theory in Modelling the Long-Run, The Economic Journal V.107, P.178-191.
• Pesaran, M.H. and Y. Shin (1999), An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis in Storm S. (ed) Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Chapter 11, Cambridge University Press.
• Pesaran, M.H. Y. Shin and R.J. Smith (2001): Bounds Testing Approaches to the Analysis of Level Relationship, Journal of Applied Econometrics V.16, P. 289-326.
• Rubio, B, Oscar & Díaz-Roldán, Carmen & Esteve, Vicente, 2014. "Deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850–2000," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 924-937.
• Sargent, T, Neil Wallace (1985), Interest on reserves, Journal of Monetary Economics, Volume 15, Issue 3, , Pages 279-290
• Turner, P (2011), Fiscal dominance and the long-term interest rate. Financial Markets Group, London School of Economics. Special Paper No 199. www2.lse.ac.uk/fmg/workingPapers/specialPapers/home.aspx
• Sargent, T. J. and N. Wallace (1981): “Some unpleasant monetarist arithmetic”, Federal Reserve Bank of Minneapolis Quarterly Review No. 5.
• Sabaté, M., Fillat, C. & Escario, R. (2019). “Budget deficits and money creation: Exploring their relation before Bretton Woods”. Explorations in Economic History. 72(2019)
• Tanner, E; Ramos, Alberto M. (2003) Fiscal sustainability and monetary versus fiscal dominance: evidence from Brazil, 1991-2000 Applied Economics, Volume 35, Number 7, May 10, 2003, pp. 859-873(15)
• Trenovski, Borce Mihail and Tashevska, Biljana (2015), Fiscal or Monetary Dominance in a Small, Open Economy with Fixed Exchange Rate – The Case of the Republic of Macedonia - Proceedings of Rijeka Faculty of Economics, Journal of Economics and Business, Vol. 33, No. 1, 2015, pp. 125-145, Available at SSRN: https://ssrn.com/abstract=2632992