Cyclical Variation of Fiscal Multiplier in Turkey

Cyclical Variation of Fiscal Multiplier in Turkey

Title:

Cyclical Variation of Fiscal Multiplier in Turkey

Number:

16/19

Author(s):

Cem Çebi, K. Azim Özdemir

Language:

English

Date:

September 2016

Abstract:

This paper aims to investigate cyclical variation of government spending multiplier for Turkey over the period of 1990:q1-2015:q4. We use a time series model, namely local projection method, to estimate the variation in the fiscal multiplier under two different regimes: low and high growth regimes with respect to long-term economic growth. In line with the literature our results confirm that the effectiveness of fiscal policy enhances at times of low growth compared with times of high growth. Turning to the components of government spending, we find that the magnitude of government investment multiplier is larger than that of government consumption multiplier in both regimes. This evidence supports the view that an expansionary fiscal policy via public investment has a profound effect on output compared to public consumption. However, we find an evidence that the influence of government consumption on GDP increases substantially at times of low growth. All in all, we suggest policymakers to use public investment rather than public consumption in order to stimulate the economy during economic expansion and prefer to increase public consumption at the times of economic slow down.

Keywords:

Fiscal Policy, State-dependent fiscal multipliers, Local Projection

JEL Codes:

E62; H30

Cyclical Variation of Fiscal Multiplier in Turkey
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