Keywords: fiscal deficit sustainability, structural break, cointegration tests, multicointegration tests, Turkey
Sustainability of the fiscal deficit in Turkey: evidence from cointegration and multicointegration tests
This paper investigates the fiscal deficit sustainability of Turkey over the period 1975?2008 by using both cointegration and multicointegration methods. In addition to the conventional unit root tests, the minimum LM unit root test with one structural break is used to examine the time series properties of government expenditures and revenues. Since the series are I(1) , the study next implements a cointegration method with an endogenous break. The cointegrating vector estimations from the DOLS procedure indicate that the fiscal deficit is weakly sustainable. This paper also uses one-step multicointegration method to test whether the fiscal process is truly sustainable in Turkey. The results show that the fiscal system in Turkey is multicointegrated and sustainable.