The analysis of the relationship between public expenditures and inflation in Turkey (1990-2012)

In society, as a consequence of humans? will to live together, a number of needs emerged and the development of the society has enhanced these needs to a great extent. Answering these needs by supplying goods and services resulted in a great amount of unavoidable expenditure. Thus, in parallel to the needs, the state expenditure has increased over time. Increasing expenditure, when cannot be financed with enough state income, increases budget deficit and debt stock, and adds pressure for higher interest rates. Following, increasing interest rates negatively affect production costs and may cause cost-push inflation. The aim of this study is to analyse the relationship between state expenditure and inflation. In determining this relationship the annual data of the years 1990-2012 is subjected to time series analysis. The study differentiates from other literature in terms of its current. It uses current data set between 1990-2012. This thesis includes two different model; univariate regresion analysis and multivariate regression analysis. Consequently, the empirical results in univariate regression analysis indicate inflation rates are positively and significantly correlated with total state expenditure and state transfer expenditures in Turkey. The empirical results in multivariate regression analysis indicate inflation rates are positively and significantly correlated with recurring and transfer expenditures in Turkey. However, they are positively and insignificantly correlated with investment expenditures. Key Words: Public Expenditures, Inflation, Time Series Analysis.