Analysis of the relationship between credit expansion and political business cycle - the case of Turkey (1980-2017) -

Whether economic fluctuations are related to political fluctuations has been discussed in literature for a long time. Politicians in positions of power, trying to manipulate the economy in the period before the elections in order to turn the elections in their favor is expressed as the concept of political business cycle. The concept has been shaped within the framework of traditional and modern political business cycle. Over time, opportunistic and partisan models have emerged under both traditional and modern models, with the contribution of various authors to the concept. Elections durations in which politicians are either punished by being overthrown or rewarded by being re-elected according to the results of the economic program they implement, therefore elections are of vital importance for politicians. Just before the elections, politicians can intervene with the economy with macroeconomic tools to create artificial welfare. These tools can be monetary and credit policy tools. The aim of this study is to examine the change in bank loans before the elections held between 1980-2017 in Turkey, and whether political governments use credit growth as a tool to increase their votes in the elections, just as they do in other macroeconomic variables. Although there are many studies examining the relationship between political business cycle and various macroeconomic indicators in literature, in our study, the relationship between credit growth in the banking sector and political business cycle in the banking sector in Turkey before and after the general elections, local elections and referendums covering the period 1980-2017 were analyzed on a 3-month and annual basis. As a result of the study using panel data, it has been determined that there is a strong positive and statistically significant relationship between the general elections held between 2000 and 2017 and the loan growth of banks. This shows that in the relevant period, policy makers used credit growth as a tool within the scope of political business cycle theory. The study was also carried out with 3 month data to cover the period of 2010-2017. In this period, however, there was no significant relationship between loan growth and elections. It is thought that the politicians preferred credit growth in the period before the elections, rather than using the credit growth of the banks as a tool in the period just 3 months before the elections.