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Citation Information

Type Journal Article
Title The Effectiveness of Countercyclical Fiscal Policy in Turkey during the Recent Economic Crisis: Evidence from a Natural Experiment
Publication (Day/Month/Year) 2012
URL http://emnet.univie.ac.at/uploads/media/Polat_Nisar.pdf
During the recent economic crisis, Turkey was one of the countries experiencing the sharpest contraction in GDP. Yet, the subsequent recovery was stronger and faster compared to the OECD average with GDP growth rates of around 10%. Given that Turkey implemented a range of countercyclical fiscal measures that were fairly large relative to other developing countries and to previous crises, the question that immediately arises is whether these measures helped to stabilize the economy. This paper evaluates the effectiveness of a particular measure of the Turkish fiscal response package to the recent global financial crisis, namely a temporary cut in the value added tax (VAT) and special consumption tax (SCT) on a range of durable goods which according to estimates provided a stimulus to the Turkish economy of 0.27% of GDP excluding any multiplier effects. From a theoretical perspective, contrary to other measures such as a decrease of income taxes or an increase in public investment, it is much more likely that a cut of indirect taxes on durable goods helps to stabilize the economy as consumers shift expenditure to exploit temporarily lower prices.

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