Macroeconomic consequences of fiscal policy uncertainty

Uncertainty is one of the most important factors affecting the decisions of economic agents. Because a high uncertainty environment can change the direction of the business cycle. Uncertainty affects the production, consumption, and investment decisions of economic agents. Another factor affecting the decision of economic agents is fiscal policy uncertainty. Fiscal policy uncertainty arises from fiscal, economic, and political reasons. Macroeconomic consequences of fiscal policy uncertainty are analyzed in this study for Turkey. First, fiscal policy uncertainty is calculated based on the volatility measurement for the period 1998: Q1-2020: Q4. We conclude that fiscal policy uncertainty for Turkey reflects fiscal, economic, and political incidents. Second, we estimate a VAR model for Turkey. The fiscal policy uncertainty shocks hurt economic confidence, real effective exchange rate, output, consumption, investment. We find that confidence is the main transmission channel of fiscal policy uncertainty. These results should be taken into account in terms of the effectiveness of the fiscal policy. Keywords: Fiscal policy uncertainty, Business cycle, VAR, Turkey.