Non-Keynesian Effects of Fiscal Policy: The Case of Turkey

Fiscal policy implication has attracted an increasing attention in recent years. One of the widely known results in fiscal policy implication is that contractionary fiscal policy should impact negatively on output in short run. However, a large part of recent empirical studies in the area of public finance has been exploring the expansionary influence of fiscal consolidations on output. This paper investigates the hypothesis that fiscal contraction may be expansionary in Turkey. We use quarterly dataset covering 1990: 1-2010:4, and estimate a vector error correction model to analyze the macroeconomic effects of fiscal policy. The results show that government spending shocks have a positive effect on GDP. Similarly, tax shocks also have positive effects on output.