Factors Affecting Primary Balance in Turkey

In this paper, it is aimed to examine empirically determinants of primary balance in Turkey. In this direction, it is estimated Turkey's fiscal reaction function by using annual data between 1986-2017 through Ordinary Least Squares method. Our findings show that the primary balance reacts positively to the increase in debt in Turkey. But this reaction decelerates with the increase in the debt stock due to fiscal fatigue. In addition, the primary balance reacts output gap, government expenditure gap, age dependency and trade openness. Consequently, periods of economic recovery, government's fiscal space and youth employment are highly important to determine a good primary balance level. Also, governments in Turkey focus high current account deficit problem to ensure controlling of the primary balance.