Abstract:

In this study, the existence of a long-term relationship between budget income and expenditure variables is analyzed to determine the sustainability of the budget deficit in the Turkish economy. Under the intertemporal budget approach, this relationship was tested with unit root and cointegration tests, using annual data of the variables from the period when the structural transformation started with the decisions of January 24, 1980, to 2016. During the study, we used different tests like ADF and PP unit root tests, Zivot-Andrews unit root test, which allows single structural break, Johansen cointegration test, and Gregory-Hansen cointegration test with a single break. According to the Johansen test, we concluded that there is no long-term relationship between income and expenditure, and budget deficits are unsustainable. However, it was determined that there is sustainability through the Gregory-Hansen test. The long-term coefficient estimated by the OLS method shows a weak form of sustainability.

Keywords: