Reflections of institutional changes and political issues: Econometric applied historical evaluation with Ottoman bonds (1903-1914)

Bond prices are related to a country's spending and revenue capacity, which is affected by political and geopolitical events. Government bonds' outcomes, purchased by investors, help us understand if a country is a good destination for investment. During wars or political turmoil, government spending is expected to increase, leading to lower demand for bonds This can create price fluctuations. On the other hand, as the country's financial situation and overall economy improve, bond prices can stabilize. For example, a more effective tax system, stricter control of public spending, or reforms establish a better financial and administrative systems, which can make investors trust the government more. In this case, investors are more willing to lend money to the government, increasing demand for bonds and raising prices. Conversely, if these conditions are not met, demand decreases and prices fall. The thesis aims to understand the impact of changes, particularly tax and administrative reforms, in the Ottoman Empire between 1903 and 1914 on the financial and administrative systems. This period witnessed significant reforms such as the Second Constitutional Era and the introduction of the Personal Income Tax. The study focuses on analysing bond prices to gauge the effectiveness of these reforms. Daily bond prices from the İstanbul, London, Paris, and Berlin stock exchanges will be examined to discern how reforms influenced the economic landscape. Ultimately, it is believed that these reforms will increase bond prices and stabilize the economy, if they were effectively imposed. The econometric analyses reveal that events such as the Second Constitutional Era and the Personal Income Tax Reform in the Istanbul Stock Exchange, the Russo–Japanese War and the 1907 Financial Crisis in the London Stock Exchange, and the Second Constitutional Era, the Personal Income Tax Reform, the Russo–Japanese War, and the First Balkan War in the Paris Stock Exchange had created volatility. In the Berlin Stock Exchange, events like the First Balkan War increased volatility. Overall, similar investor reactions were observed in the İstanbul and Paris stock exchanges. Our findings suggest that factors such as the wars mitigated the positive impacts of reforms. These results contribute to our understanding of the economic transformation of the Ottoman Empire and as well countries experiencing fiscal problems and institutional changes in today.