POLITICAL BUSINESS CYCLES IN THE TURKISH ECONOMY: 1977-2001

This study is about political business cycles (PBC) and investigates the Turkish case in the 1977-2001 period. The PBC literature has been developed in the last four-five decades and links economics and politics in several ways.In the first part of the study, developments in the literature are mentioned and the link between New Classical Economics and New Political Economics is introduced. In the second part, Turkish case is analyzed in details to determine whether therehave been PBC during the above mentioned period. The results show that there have been political cycles in some macroeconomic variables which are currency issued, broad money (M1), public sector credits and agricultural credits extended by Central Bank of the Republic of Turkey (CBRT), and tax revenues. CBRT has not allowed PBC especially on the targeted variables (CBRT balance sheet size, net domestic assets and monetary base), after 1989. Due to the high legal ceilings of CBRT credits to the public sector, CBRT was not able to limit those credits, especially before 1991 general elections.There had been similar PBC on agricultural credits which had been extended in the 1977-1991 period by CBRT. In addition to the regression analysis, comparative tables and figures for personnel expenditures of State Economic Enterprises (SEEs),agricultural credits which had been extended by Agricultural Bank of the Republic of Turkey (ABRT) in the 1964-1998 period and agricultural prices which had been declared by governments in the 1986-1999 period are provided in the paper.The study provides some evidence to PBC literature and determines which policy instruments could have been used to produce PBC in the Turkish economy. And it is also important to learn which policies can be manipulated in order to prevent thePBC in the future.

Anahtar Kelimeler:

Politik devresel hareketler; otoregresyon analizi; zaman serisi analizi; yapısal kırılmalar; kukla değişkenler; Türkiye ekonomisi

POLITICAL BUSINESS CYCLES IN THE TURKISH ECONOMY: 1977-2001

This study is about political business cycles (PBC) and investigates the Turkish case in the 1977-2001 period. The PBC literature has been developed in the last four-five decades and links economics and politics in several ways. In the first part of the study, developments in the literature are mentioned and the link between New Classical Economics and New Political Economics is introduced. In the second part, Turkish case is analyzed in details to determine whether there have been PBC during the above mentioned period. The results show that there have been political cycles in some macroeconomic variables which are currency issued, broad money (M1), public sector credits and agricultural credits extended by Central Bank of the Republic of Turkey (CBRT), and tax revenues. CBRT has not allowed PBC especially on the targeted variables (CBRT balance sheet size, net domestic assets and monetary base), after 1989. Due to the high legal ceilings of CBRT credits to the public sector, CBRT was not able to limit those credits, especially before 1991 general elections. There had been similar PBC on agricultural credits which had been extended in the 1977-1991 period by CBRT. In addition to the regression analysis, comparative tables and figures for personnel expenditures of State Economic Enterprises (SEEs), agricultural credits which had been extended by Agricultural Bank of the Republic of Turkey (ABRT) in the 1964-1998 period and agricultural prices which had been declared by governments in the 1986-1999 period are provided in the paper. The study provides some evidence to PBC literature and determines which policy instruments could have been used to produce PBC in the Turkish economy. And it is also important to learn which policies can be manipulated in order to prevent the PBC in the future

Keywords:

Political business cycles; Autoregression analysis; Time series analysis; Structural breaks; Dummy variables; Turkish economy,

PDF

___

ALESINA, A. (1987), "Macroeconomic Policy in a Two-Party System as a Repeated Game", Quarterly Journal of Economics, 102, 650-678.
ALESINA, A., Cohen, G.D. and Roubini, N. (1992), "Macroecomic Policy and Elections in OECD Democracies. Centre for Economic Policy Research, Discussion Paper No. 608.
ALESINA, A., Cohen, G.D. and Roubini, N. (1997), Political Cycles and the Macroeconomy, Cambridge, Mass. (USA): The MIT Press.
BERGER, H. and Woitek, U. (1997), "Searching for Political Business Cycles in Germany", Public Choice, 91, 2, 179-97.
BERGER, H. and Woitek, U. (1999), Further Observations on the Political Business Cycle in German Monetary Aggregates, CES, University of Munich and University of Glasgow.
BERGER, H. and Woitek, U., (2001), "The German political business cycle: money demand rather than monetary policy" European Journal of Political Economy 17, 3, 609-631.
BLOCK, S. A. (2002), Political Business Cycles, Democratization, and Economic Reform: The Case of Africa, Journal of Development Economics, 67, 1, 205- 228.
BOX G., Jenkins, G. (1976), Time Series Analysis, Forecasting, and Control. San Francisco, Calif. Holden Day.
CAMERON, L. and Crosby, M. (2000), "It's the Economy Stupid: Macroeconomics and Federal Elections in Australia", The Economic Record, Vol. 76, No. 235, (354-364).
CAMPBELL, J.Y. and Perron, P. (1991), "Pittfalls and Opportunities: What Macroeconomists Should Know About Unit Roots", National Bureau of Economic Research, Technical Working Paper No: 100.
DOWNS, A. (1957), An Economic Theory of Democracy, New York: Harper & Row. ENDERS, W. (1995), Applied Econometric Time Series, USA and Canada: John Wiley & Sons, Inc.
EREN, E. and Bildirici, M. (1999), "Siyasal Konjonktür Dalgaları ve Türkiye'de Seç- men Davranışı". İktisat, İşletme ve Finans Dergisi, Ekim, 27-37.
ERGUN, M. (2000), Electoral Political Business Cycles in Turkey, Thesis (Master's) Bilkent University.
ERSEL, H. and Öztürk, E. (1992), Para Politikası Uygulamaları ve Para Miktarı, TCMB Araştırma Genel Müdürlüğü, Tartışma Tebliği, 9207.
HALL, A. (1994) Testing for a unit root in time series with pretest data-based model selection, Journal of Business and Economic Statistics, 12, 461-70.
HALLERBERG, M. and Souza, L. V. (2000), "The Political Business Cycles of EU Accession Countries", Tinbergen Institute Discussion Paper, TI 2000-085/2. HIBBS, D. (1977), "Political Parties and Macroeconomic Policy", American Political Science Review, 71, 1466-1487.
KYDLAND, F. and Prescott, E. (1977), "Rules Rather than Discretion: The Inconsistency of Optimal Plans, Journal of Political Economy, 85, 473-90.
KUZU, Y. (2001), Türkiye Ekonomisinde Politik Devresel Hareketler, Yüksek Lisans Tezi, Ankara Üniversitesi Sosyal Bilimler Enstitüsü.
LEERTOUWER, E. and Maier, P. (2000) International and Domestic Constraints on Political Business Cycles in OECD Economies: A Comment, University of Groeningen.
LEERTOUWER, E. and Maier, P. (2001), "Who creates political business cycles: should central banks be blamed?", European Journal of Political Economy, 17, 3, 445-463.
LOCKWOOD, B., Philippopoulos, A. and Tzavalis, E., (2001) "Fiscal policy and politics: theory and evidence from Greece 1960-1997", Economic Modelling, 18, 2, 253-268.
MACKINNON, J. G. (1991), Critical Values for Cointegration Tests. In: R. F. Engle and C. W. J. Granger (Eds.) Long-run Economic Relationships: Readings in Cointegration, Oxford University Press, Oxford. pp.267-276.
MUTH, J.F. (1961), "Rational Expectations and the Theory of Price Movements", Econometrica, 29, 3, 315-335.
NELSON, C.R. and Plosser, C.I. (1982), "Trends and Random Walks in Macroeconomic Time Series: Some Evidence and Implications, Journal of Monetary Economics, 10, 139-162.
NORDHAUS, W. (1975), "The Political Business Cycle", The Review of Economic Studies, 42, 169-191.
OLTERS, J.P. (2001), "Modeling Politics with Economic Tools: A Critical Survey of the Literature" , IMF Working Papers, WP/01/10.
ÖZATAY, F. (1999), "Populist Policies and the Role of Economic Institutions in the Performance of Turkish Economy", Yapı Kredi Economic Review, 10, 1. ÖZATAY, F. (2000), Public Price Controls, Deficit Financing, and Electoral Cycles, A Paper Presented at METU Conference in Economics in Sept. 13-16.
ÖZTÜRK, E. (1992), Türkiye'de Son Dönemde Para Politikası Tartışmaları, TCMB Araştırma Genel Müdürlüğü, Tartışma Tebliği, 9206.
PALDMAN, M. (1997), "Political Business Cycles", in Mueller 1997 (ed.) Perspectives of Public Choice.
PERRON, P. (1989), "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis, Econometrica, 57, 1361-1401.
PERSSON, T. and Tabellini, G. (1990), Macroeconomic Policy, Credibility and Politics, New York: Harwood Academic Publishers.
PHILLIPS, A. W. (1958), "The Relation between Unemployment and the Rate of Change of Money Wages in the United Kingdom, 1861-1957", Economica, 25, 100, 283-299.
PITRUZELLO, S. (1999), "Political Business Cycles and Independent Central Banks. German Governments and the Bundesbank (1960-1989), EUI Working Paper RSC No. 99/7.
ROGOFF, K. and Sibert, A. (1988), "Elections and Macroeconomic Policy Cycles", Review of Economic Studies, 55, 1-16
SCHUMPETER, J. (1945), Capitalism and Democracy, New York: Harper, 1945.
TELATAR, F. (2001), "Politik Devresel Dalgalanmalar Teorisi Işı ğında Demokrasi-Siyaset-Ekonomi İlişkisi", İktisat, İşletme ve Finans, 16, 187, 57-66.
TREISMAN, D. and Gimpelson, V. (1999), "Political Business Cycles and Russian Elections, or the Manipulations of 'Chudar'", CIRJE-F-39.
TUTAR, İ. and Tansel, A. (2000), Political Business Cycles, Institutional Structure and Budget Deficits in Turkey, A Paper Presented at METU Conference in Economics in September 13-16, 2000.
WEBER, C. E. (2001), "Alternative Lag Length Selection Criteria and the SplitTrend Stationarity Hypothesis", Applied Economics, 33, 237-247.
YAMAK, N. and Yamak, R. (1999), "Türkiye'de Genel Milletvekili Seçimleri ve Ekonomi", İktisat, İşletme ve Finans Dergisi, Şubat, 47-57.
ZIVOT, E. and Andrews, D. (1992), "Further Evidence on the Great Crash, the Oil Price Shock and the Unit Root Hypothesis, Journal of Business and Economics Statistics, 10, 251-270.