Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/257118
Year of Publication: 
2020
Citation: 
[Journal:] Economies [ISSN:] 2227-7099 [Volume:] 8 [Issue:] 3 [Article No.:] 69 [Publisher:] MDPI [Place:] Basel [Year:] 2020 [Pages:] 1-20
Publisher: 
MDPI, Basel
Abstract: 
Two of the most common measures adopted by the government to stimulate the economy are increasing government borrowings and implementing tax cuts. These tax cuts are financed through increased debt. According to the Ricardian equivalence theory, the consumers will not change their current spending when they anticipate a tax increase in the future. In order to pay high taxes in the future, the government should increase its present savings. However, the extent of applicability of Ricardian equivalence could vary across nations. In this context, the present study explores the long-running relationship between domestic borrowing and private savings in Turkey. For this purpose, the researcher collected the data for key variables, gross domestic savings, and government debt, for the period of 1980-2017. The researcher used unit root, cointegration, VECM, and the Granger causality test to examine the relationships among the variables. Apart from this, ARDL regression was used in order to examine the long-term relationships among the variables. The empirical results indicate that there is presence of bidirectional causality, indicating that Ricardian equivalence is applicable in the economy. Households display a rational behavior by increasing their savings during the periods in which high government expenditure is incurred.
Subjects: 
Turkey
government expenditure
private savings
Ricardian equivalence
taxes
consumption
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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