The role of fiscal policy in ensuring economic stability: Fiscal impulse and the case of Turkey

The twin challenge created by the 2008 USA financial crisis that proceeded rapidly and spread across the world to affect global real economies disturbed not only the stability of the global economy but also diminished country-wise economic prospects. Due to this lack of global economic stability, the rate of economic growth slowed and even stopped, unemployment soared, international trade declined, poverty increased and the inequality of distribution of income deteriorated further with the crisis-driven instability. The results of the global economic instability reflected on both the economy itself and also on social and political spheres due mostly to the emergence of crucial problems and associated costs, which highlighted the significance of economic stability for not only developed but also developing countries. Accordingly, nearly every country in the world decided to introduce stability policies centred on fiscal policy in order to re-establish economic stability and resolve problems and costs associated with instability. However, the role of fiscal policy in ensuring and sustaining economic stability has been a controversial topic in both theory and practice since the Great Depression of 1929. In this context, the purpose of this study is to demonstrate the controversial role, if any, of fiscal policy in economic stability through the case of Turkey by way of an analysis encompassing the years from 1980 to 2014. This thesis is comprised of three main parts. The first and second parts include theoretical and conceptual arguments and a discussion of the relevant literature on economic stability and fiscal policy respectively. The third part presents a uniquely holistic view of the relationship between fiscal policy and economic stability with a view to the hypothesized effect of the former on the latter by way of fiscal impulse for the case of Turkey.