The impact of domestic debt on social expenditure in Turkey

ABSTRACT This paper aims to answer the question that whether internal debts affect social expenditures in Turkey. In other words, it will be researched that whether state's internal barrowings from private person and institutions, social security associations and economic institutions, banks and insurance companies and Central Bank have an impact over social expenditures. It is also aimed to reach the answer of the question that whether interest payments that state have to pay to creditors ,as a result of internal barrowings, create pressure over public budget. If so, whether state has to compensate from social expenditures that state has to do, because of the payments which restrict the budget, is another question which is wanted to be answered. In this study, it is mentioned that as a result of the spread of neo-liberal ideas among states, together with Washington Consensus' ideas, Turkey also influenced from these liberalisation movement. This study contains the marketization process of the Turkish economy after 1980, the time that state's structure and definition was revised; some state economic enterprises (KİT) was privatized and private sector was supported so as to replace some fields where state operates. In short, instead of economic intervensionist state, a minimal state that intervenes only if there is a failure in market appeared. As a result of this framework, the dynamics of domestic borrowing and structure of social spending are studied. Reasons of the basis of borrowing, the circumstances of borrowing, payments on dent in consequence of this borrowing gone to which part of society are also researched. So distribution of income that exist in society is used as regulatory group whicxi and internal debt stock datas collected from Undersecretariat of Treasury analyzed by using Cointegration analysis which is a part of time series econometric techniques . In this analytical framework, the influence of internal debt over the social expenditure is researched. In this study, first of all in the first part books and essays about the topic of this study was examined as literature review. It is found that, internal borrowings put a burden on budget and it also has a cost to the society. It is mentioned that there is a welfare transfer to the lenders from the rest of the society and in this way inequity in income distribution become more obvious. Furthermore, in the studies which compares Turkey with other countries in terms of social expenditure it is said that amount of money allocated for social spending from the budget is too low. It is seen that the reason of not increasing this spending amount is state's interest payments to lenders of these internal debts. In the second part of the study, post1980 Turkish economy's internal borrowing dynamics are investigated by taking pre 1980 Turkish economic history into consideration. Statist policies after the establishment of the Republic, aim of creating industrial bourgeoise as a result of these policies and negative effects of this situation on people operating in agricultural sector are argued. The year 1946 was very crucial for Turkish economy since multi-party system was established in 1946. In the mid 1950's mixed economy model was accepted in which the state and private sector function together. The realization of the fact that liberal policies implemented before 1970's couldn't control the budget and huge trade deficit became uncontrollable. With the oil crisis in 1974 Turkish economy deeply depressed, even became dependent on one cent, and this depression led state to internal borrowing. After the January, 24 decisions in 1980 state economy became suitable for liberal policies. Aim of that policies did not intend to improve social welfare but only served the development of more liberal policies ehich open up the space for easy movement of capital. In the second part, as a subtitle, structure of social expenditures in Turkey was investigated. In this context, social state and social expenditure was discussed. Social states' establishment process and to what extend countries obey the ii requirements of the term social state are examined. Under the category of social expenditure educational expenditures, spendings on health services, social security spendings are defined. It is stressed that those expenditures have to be fulfilled by "social" states. Then, it is mentioned that social state concept has revised with the globalization process and it is also mentioned that as a result of this revision, policies became more liberal and privatizations have occured. Moreover, it is argued that health and educational services transformed in such a way that favoring the market. Among these transformations, privatiation of state institutions which brings profit at one time is came into agenda. Additionally, in the field of health, via general health insurance all social security institutions gathered under the one roof. Amount of individual health payments are increased as a result of this transformation. Similarly, in education, public schools' failures resulting from several limited facilities are started to be emphasized. Together with this emphasis, prep-schools and transformation of them to the private educational schools are in the agenda of the governments. Also, subsidies which will be given to these institutions during this process, openly shows us the decisions of the people who favour the market. In the third part of this study some general information is given about the term borrowing. Then causes of borrowings are investigated. Causes of borrowings are listed and categorized as following; borrowings for extraordinary expanses, for state's and other public institutions' investments and reforms, for balancing the difference between current expenditure and current revenue and fore some particular reasons. Indeed, classification of these borrowings are also searched and it is classified as following; arbitrary and mandatory debts, short-term and long-term debts, external and internal debts. As stated in the title we emphasized on internal debts. Internal debts are divided into four category in terms of its sources ; private person and institutions, social security associations and economic institutions, banks and insurance companies and Central Bank. In addition to sources of internal borrowing, selling methods in internal borrowing is also emphasized in this part of the study. These methods are; outright sale, tender and endettement continuel. In the last part of the thesis, social expenditure datas between years 1980 and 2010 collected from OECD and World Bank and internal debt stock datas between same time interval collected from Undersecretariat of Treasury's web site analyzed by using Cointegration analysis. In the analysis, firstly the purpose of observing the relationship between data, ADF unit root test was applied to data which is located in