Title:
Bayesian VAR Estimates for the Fiscal Multipliers in Turkiye

Authors:
Ilyas Siklar, Turkey

Abstract:

Studying the economic growth effects of each type of tax and expenditure through fiscal multiplier analysis is crucial for responding to the economic cycle while maintaining fiscal soundness. This approach may help maximize the effectiveness of fiscal policy. This study estimates a structural VAR model to measure the impact of expansionary fiscal policy shocks—specifically, tax cuts and public spending increases—on GDP. It employs a Bayesian method that imposes range constraints on the parameters. While the initial impact of tax cuts and public spending increases is limited, their influence on economic growth becomes apparent within 1 to 2 years. The effect is substantially greater for public spending increases than for tax cuts. Distribution analysis of the impulse-response functions indicates that the spending increase shock has a larger effect on economic growth than the tax cut shock. The inclusion of two significant turbulent periods in the study’s sample -the global financial crisis and the Covid-19 pandemic- plays a crucial role in this finding. Other contributing factors include changes in population structure, such as population aging, and the weakening of monetary policy effectiveness.

DOI: https://doi.org/10.51505/IJEBMR.2024.81204