Sustainability of public deficit and debts: 1970-2005 case of Turkey

The term sustainability, about what the economists started to talk from thebeginning of 1990s, has became so important and been actual up to now. According tobudget policies sustainability is an accomplishment of governments on theSustainability of debts points out if the government has power to cover the entire budgetdeficits and its own debts or the debts are much bigger then government can cover. Inanother words sustainability of debts help us to be able to measure the possibility ofinsolvency of governments. If a government is trying to cover its continuous budgetdeficits with run up debts, this policy will cause rapid increasing in borrowing costs andinterest rates and finally this kind of borrowing policy will be failed. On another hand,increasing in the rate of budget deficit per national revenue will affect negatively themain macro economic variables and the expectations which have a very important roleon sustainability.There are three methods to measure the sustainability of debts; accountingmethod, the determinants of sustainability theory and intertemporal budget constrainttheory. When we try to examine the dynamic of deficit and borrowing under theconditions of intertemporal budget constraint theory, we could find answer of thequestion ?Do we have any chance to cover budget deficit or debt stock of today byincome surplus of future??. If capitalized value of primary surplus of future is at leastequal to debt stock or budget deficit we can talk about the sustainability of budgetdeficit or public borrowing. By contrast with this, absence of intertemporal budgetconstraint points out the existence of unsustainable budget deficit or public borrowingand the entailment of radical changes in financial policies.To analyze whether the intertemporal budget constraint is satisfied or not, weuse mainly three methods. These are; analysis of stationary of deficit or debt stockseries, examination of long-term relation between public revenue and publicexpenditures and analysis of the reaction of primary surplus to the changes in debtstock.In this study, we will analyze the sustainability problem of deficit and debtwhich became a current issue especially after 1990 in Turkey. Hence, firstly we willanalyze the stationary of deficit and debts after then examine the long-term relationbetween public revenue and public expenditures.