Granger causality test of public revenues and public expenditures: The case of Türkiye 2006-2024

The constantly changing nature of the economic system has led to an increase in the responsibilities of governments to sustain the existence of nations. However, the primary responsibility of governments is defined as meeting the needs of the public. Budget balance is critically important to ensure the sustainability of public expenditures, which are financed through public revenues. The situation where public revenues exceed public expenditures is referred to as a budget surplus, whereas the case where public revenues fall behind public expenditures is referred to as a budget deficit. In cases of a budget deficit, insufficient public expenditures can lead to a decline in the welfare level of the public, undermine public trust, and create adverse effects on the economy. In this context, the study investigates which factor takes precedence in maintaining the balance between public revenues and public expenditures (whether expenditures or taxation come first). Within this scope, the validity of the tax-spend, spend-tax, fiscal synchronization, and institutional difference hypotheses is tested. The primary reason for selecting Türkiye's public revenue and expenditure data for the period of 2006–2024 and beyond—both in aggregate and by subcategories (tax revenues, current expenditures, investment expenditures, interest expenditures, and non-interest expenditures) is the financial reforms implemented in 2005. The Public Financial Management and Control Law No. 5018, enacted in 2005 and fully enforced in 2006, laid the foundation for strengthening transparency, accountability, and efficiency in public finance. Moreover, since 2005 was a transitional period, the post-2006 period has been prioritized to minimize potential distortions in price stability and nominal values. Additionally, as Türkiye's EU accession negotiations began in 2005, assessing the impact of fiscal reporting, budget discipline, and public expenditure reforms necessitates a certain passage of time. Based on these considerations, the dataset for this study covers the years 2006–2024. The analysis results indicate that the expenditure-revenue hypothesis holds for Turkey during the 2006–2024 period.