Current Debates on Public Finance

Theory and Practice

by Mustafa Erkan Üyümez (Volume editor) Canatay Hacıköylü (Volume editor)
©2023 Edited Collection 218 Pages


This book covers current issues and debates in the field of public finance, and features contributions from twenty-one academics across eight different universities. It comprises fourteen chapters, with the first eight covering current discussions in various areas of public finance theory and practices while the last six chapters deal with current debates on tax theory and policies. The aim of this book is to present current debates on public finance from different perspectives.
The book titled Current Debates on Public Finance: Theory and Practice not only provides the reader with information on different current issues but also shares the data obtained by different methods. Combining these new methods used in social sciences with public finance theory and practices is important in terms of its contribution to the literature. Therefore, the text is expected to provide information for the reader within the scope of future studies. Thus, the way can be opened for new international cooperations.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • book About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Table of Contents
  • List of Contributors
  • Fiscal Stance and Inflation Expectations in Turkey: A Markov Regime Switching Analysis
  • EU Anchor, Turkish Governance and Economic Performance
  • Forecasting Business Cycles with System Dynamics
  • Household Borrowing and Economic Stability
  • Financial Stability and Economic Growth in Turkey
  • Local Policies on Internal Migration: The Case of Andalusia
  • Evolution of the EU Budget via Digitalisation and Greening Priorities
  • The Effect of Government R&D Expenditures on Emissions
  • How Many Companies Had Been Founded in Ottoman?
  • Nft As a New Generation Investment Instrument and Its Taxability
  • An Econometric Study on Reasons of Tax Gap: The Case of Turkey
  • The Concept of “Valuation” In Determining The Truth of Taxable Income
  • Metaverse: Evaluation of the Alternative Virtual Universe in the Context of Taxation Power
  • Effects of Artificial Intelligence on Tax Inspections

Süleyman Kasal1 & Şebnem Tosunoğlu2

Fiscal Stance and Inflation Expectations in Turkey: A Markov Regime Switching Analysis3

1. Introduction

One major issue that closely concerns both fiscal policy and monetary policymakers is expectations. The economic actors’ expectations play an important role to decision-makers. Because policymakers make decisions according to the economic actors’ expectations. Especially, inflation expectations are a guide for policy makers.

With the broad adoption of inflation targeting within the context of monetary policy, the idea of expectations has received increased attention (Kara & Küçük-Tuğer, 2010: 2725). For example, Turkey’s new monetary policy following the 2001 crisis stresses the need of managing public expectations in order to eliminate inertia in inflation dynamics by moving economic actors’ inflation expectations to a forward-looking perspective (Oral et al., 2011: 6). On the other hand, as is known that the inflation expectations are also shaped according to fiscal policy. According to the traditional view, monetary policy alone is not enough to ensure price stability, and an suitable fiscal policy is also necessary to control inflation (Lyziak & Mackiewicz-Lyziak, 2020: 296).

The first study emphasizing the importance of fiscal policy in ensuring price stability was conducted by Sargent and Wallace (1981). The authors developed their studies on the assumptions that monetary and fiscal policy dominate each other. In their studies, Sargent and Wallace (1981) argue that the monetary authority cannot control the monetary base and inflation forever under the assumption that fiscal policy dominates monetary policy. Indeed, the fact that budget deficits cannot be financed forever by borrowing causes principal and interest payments on bonds already sold to combat inflation to be financed, at least in part, by seigniorage, which requires the creation of an additional monetary base. According to the authors, in a monetizing economy, this practice sooner or later results in additional inflation (unpleasant monetarist arithmetic). In later years, this view was examined by many academics within the framework of the fiscal theory of the price level (Leeper (1991); Sims (1994); Woodford (1994); Cochrane (2001); Leeper and Yun (2006); Davig and Leeper (2007); Bajo-Rubio et al. (2009)). Within the framework of the fiscal theory of the price level, two different policy regimes have been put forward in the literature: the Ricardian regime (monetary dominant) and the non-Ricardian regime (fiscal dominance).4 In the Ricardian regime, the price level is determined by monetary policy, while in non-Ricardian regimes, the price level is determined by the government budget constraint (Oktayer, 2013: 54). For any given price level, the intertemporal government budget constraint under the Ricardian regime is satisfied by primary surpluses (Lyziak & Mackiewicz-Lyziak, 2020: 297). Monetary policy becomes passive and fiscal policy active in non-Ricardian regimes. Consequently, in the fiscal dominant regime, fiscal policies influence the price level (budget deficits and debt). As a result, it is critical to consider how the fiscal stance affects the level of prices.

The fiscal stance also affects inflation expectations. In their studies, Leeper and Leith (2016: 2314), when economic agents are aware that policymakers may favor inflation surprises in order to ease the debt burden, they boost inflation expectations as debt levels grow until this motivation is no longer present. Despite this, little is known about the connection between fiscal policy and inflation expectations, and this relationship is unclear. In his study, Webb (1986) concluded that inflation expectations depend on fiscal news for Germany. Celasun et al. (2004) found that an improvement in the primary balance significantly reduced inflation expectations for emerging countries. In their study, Cerisola and Gelos (2009) concluded that fiscal stance (proxied by the ratio of primary surplus to GDP) is effective in shaping inflation expectations for Brasil. In their weekly survey of inflation expectations, Galati et al. (2011) concluded that the government debt concerns triggered by the Greek financial crisis had some effect on short- and medium-term inflation expectations, albeit slightly, long-term expectations. Lyziak and Mackiewicz-Lyziak (2020) found that fiscal stance (proxied by the general government debt to GDP ratio) in 22 European countries affected the inflation expectations of consumer and professional forecasters.

Our aim is to analyze how government debt (as an indicator of fiscal stance) affects inflation expectations in periods when the economic actors’ expectations are different. The main purpose of this study is to better understand the dynamics of inflation expectations for fiscal policymakers. As is known, Turkey had low inflation and inflation expectations between 2006 and 2016. However, inflation increased and expectations deteriorated in the post-2017 period. Therefore, we can be divide inflation periods into two periods as single-digit and double-digit periods. Figure 1 presents box-plot graphs of the arithmetic averages of the expectation of 12 months ahead annual CPI (consumer price index) obtained from the Central Bank of the Republic of Turkey (CBRT) Market Participants Survey for two sub-periods.


ISBN (Softcover)
Publication date
2023 (July)
Tax law spending government debt fiscal policy economics
Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2023. 218 pp., 22 fig. b/w, 39 tables.

Biographical notes

Mustafa Erkan Üyümez (Volume editor) Canatay Hacıköylü (Volume editor)

M. Erkan Üyümez is a Professor of Tax Law at Anadolu University. He received his LLM and PhD in Fiscal Law from Anadolu University, Social Sciences Institute in 1998 and 2004, respectively. With research interests in tax penalties, tax evasion, tax system, and tax planning, he conducts field studies using qualitative research methods in tax law. He teaches tax law, tax penal law, tax compliance, and the Turkish tax system in both LLB and LLM programs, and serves in various administrative positions at Anadolu University, including head of the department, vice-chair of the ethics committee, and member of the faculty board of directors. Canatay Hacıköylü is an Associate Professor at Anadolu University. He received his master’s degree in Public Finance Science and his PhD in Public Finance (Financial/Tax Law) from Anadolu University, Social Sciences Institute in 2001 and 2009, respectively. His research focuses on the Turkish Tax System, Tax Law, Local Administrations, and ustoms Legislation. Dr. Hacıköylü has published articles and book chapters on the Turkish tax system and served as editor of the Local Administrations textbook. He teaches courses and conducts trainings on customs and tax legislation at Anadolu University, Faculty of Economics, Department of Finance.


Title: Current Debates on Public Finance
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220 pages