Primary balance and its economic effects in ensuring fiscal discipline: Turkey case

Following the escalation of adverse events, which occurred in the fiscal balances of countries in the 1980s, the efforts to ensure a fiscal discipline have become an important economic target. Primary balance has been used as an important policy tool in ensuring fiscal discipline. Indeed, after the 1990s, the World Bank and International Monetary Fund give an advice to countries, which are assosiated with them to make a positive development on the fiscal balance. These policies implemented in Turkey have not only impacted on fiscal balances indicators but also on macroeconomic indicators. In this study, it is aimed to analyse the effects of primary balance that used in ensuring a fiscal discipline on macroeconomic variables. Moreover, it is intended to countribute to the conceptual and theoretical framework of primary balance. The relationship between primary balance and economic growth, unemployment and inflation are analysed by using annual data fort he 1980-2015 period. The ARDL bounds testing approach is used to analyse the long-term relationship among variables. According to the analysis, it is found that in the long term there is no effect of primary balance on economic growth and inflation. However, the surplus of primary balance have an impact on increaing unemployment. The results of Toda-Yamamoto Casulity Test indicate that there are unidirectional casuality from primary balance to inflation and unemployment. Nevertheless, no casuality relationship can be found between primary balance and economic growth. Key Words: Fiscal Discipline, Primary Balance, Economic Growth, Unemployment, Inflation