Ankara : The Department of Economics and the Institute of Economics and Social Sciences of Bilkent University, 2009.Thesis (Master's) -- Bilkent University, 2009.Includes bibliographical references leaves 26-27.This paper studies the relationship between scal policy, nancial market frictions
and business cycle
uctuations. It is shown that in an economy where
balance sheets play a role in the propagation of shocks, using countercyclical
scal policy net worth and output
uctuations can be reduced. This countercyclical
scal policy requires to distribute resources to the entrepreneurs when
a negative technology shock is realized and levy taxes on entrepreneurs after
the technology shock is back to zero. It is shown that after the realization of a
negative shock, countercyclical scal policy reduces agency costs which would
make entrepreneurs increase investment and dampen the business cycle
uctuations
via decreasing
uctuations in net worth. By this increase in investment,
nancial fragility decreases, which reduces the slowdown of economic activity.Kısacıkoğlu, BurçinM.S
