Fiscal and Monetary Policy Effectiveness in Turkey: A Comparative Analysis

Relying on the Autoregressive Distributed Lag cointegration technique, this paper assesses the comparative effectiveness of the fiscal and monetary policy on output growth in Turkey for the period 2003:q1-2019:q1. The empirical evidence shows that both policies are effective in promoting output growth but with varying degrees, revealing that the impact of monetary policy on output growth is greater than that of fiscal policy. Overall, based on our empirical evidence, it can be suggested that the Turkish authorities should set sight on monetary policy to achieve higher output growth while seeking ways to improve the output growth-enhancing role of fiscal policy. To that end, among many others, budgetary flexibility can be increased through creating fiscal space and growth-friendly tax and spending reforms can be undertaken without jeopardizing the trade-off between growth and equity while giving priority to proper coordination of fiscal policy with monetary policy.