The effects of fiscal policy on consumer confidence: The case of Turkey

Government uses fiscal policy instruments to achieve certain social and economic objectives. Fiscal policy is effectively used to struggle with economic instability and crises, especially from The 1929 Great Depression in many parts of the world. Nowadays consumer confidence index has begun to have increasingly important, which is published by The Central Bank of Turkey and TURSTAT. The effect of Consumers on the economy who determine the expenditures, are closely related to the confidence in the economy. The relationship between consumer confidence and the fiscal policy is the starting point of this study. The policy to increase confidence of consumers is another research question. The relationship between consumer confidence and fiscal policy is examined for the period of 2006M1-2017M8 at this study. The causal relationship between consumer confidence index and direct, and indirect tax revenues, central government budget revenues, and expenditures, the share of domestic borrowing in total debt as fiscal policy indicators are investigated with various econometric methods. Besides, market exchange rate, market interest rate and consumer price indices, which are transmission mechanism variables, are included into analysis. There is direct causality from government income and expenditure to consumer confidence based on findings. General price level and exchange rate are directly affecting consumer confidence. Moreover, the short and long run relationship between consumer confidence index and government revenue is investigated with ARDL models. If contractionary fiscal policy is applied, means public revenue increases, consumer confidence index increases based on findings. As a result, expansionary fiscal contraction hypothesis is valid in Turkey for the period in hand.