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Searching for opportunistic political business cycles in Turkey.

By M. Asutay


The literature on political business cycles (PBC) suggests that incumbent governments\ud manipulate the economy for political reasons, in particular for winning elections.\ud Accordingly, it is argued that incumbent governments manipulate the economy to create\ud better economic conditions in the pre-election period with declining unemployment and\ud increasing growth rates of the economy and inflation to enhance the likelihood of reelection.\ud The theory suggests that post-election periods experience contraction in the\ud economy to offset the adverse impact of expansionary policy in the pre-election period.\ud The main argument is that due to the myopic nature of individual voters and their\ud retrospective voting attitudes, governments can manipulate the economy to create such\ud conditions to increase their popularity. The theoretical model of this opportunistic PBC\ud is based on Nordhaus theoretic (1975).\ud This study aims to investigate the existence of PBC in Turkey by modelling fiscal and\ud monetary policy instruments within traditional opportunistic Nordhausian theoretic.\ud The econometric analysis is based on Nordhaus theoretic with exogenously determined\ud elections. The fiscal and monetary policy instruments are modelled within intervention\ud analysis with quarterly data for the 1980-2002 and 1986-2002 periods. The econometric\ud time-series analysis provided unequivocally strong evidence for the presence of PBC in\ud fiscal and monetary policy instruments in Turkey.\ud In light of the evidence yielded, the presence of politically-manufactured fiscal and\ud monetary policy cycles has been established in the case of Turkey (mainly) in the period\ud 1980-2002. This implies that incumbent governments in Turkey have used elections to\ud create PBC in their attempts to buy votes for winning elections or to enhance their chances\ud of re-election. The research, hence, vindicates the Nordhausian theoretic or model in the\ud case of a developing country, namely in Turkey

Topics: Political business cycles, Nordhaus model, Elections, Fiscal and monetary policies, Autoregression analysis, Time series analysis.
Publisher: European Public Choice Society
Year: 2004
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