Macro economic impact of public deficits: The case for Turkey

One of the traditional role of public sector financial policy is to attain long termsustainable economic growth. Observed developments show that, public sector deficitsin the world economy displays an infrastructure which hinders economic growth undermacroeconomic stability.For the last decade no other topic has been rigorously discussed under economic policyas much as public sector deficits. Politicians with different schools of thought discussedthe role of reducing public deficits for the future of all economies. Although there aresplit views on the topic, majority of economists shared the common view on the hazardof public deficits. This study focuses on the macroeconomic impact of public debt onTurkish economy as reflected on leading economic variables for the 1990-2003 period.First part of the study focuses on the theoretical aspects of the issue, followed bystatistical implications for the asseesed time priod. Statistical technics used areJohansen?s Cointegration analysis and VER (Vector Autoregressive Regression). Aim ofthe study is assesment of the impact of public debt on major economic indicators for the1990-2003 period.Analysis conducted show that, budget deficits upper national income, while increase inM2 decreases it. Moreover, increase in interest levels, appreciation of national exchangerate and current account deficits sewems to increase to national income. However, thereare diversified findings on similar researches in other country experiences. But we canconclude by stating that, budget deficits distorts economic stability.Key Words: Public Deficit, Turkey, Macro Economic Impact.