An empirical study on fiscal policy in crises time: Evidence from Romania and Turkey

Abstract

Based on the assumption that fiscal policy has an important role in government policy as a GDP determinant, which represents the main conclusion of our previous research, the aim of this paper is to characterize, explain and compare the properties of fiscal policy that government uses in time of crisis in two developing countries, Romania and Turkey. In order to achieve its goal, the study uses a pooled dataset consisting of annual observations over the crisis time. Even though a countercyclical fiscal policy is highly recommended from the theoretical point of view, the empirical evidence points to an extensive use of pro-cyclical fiscal policy. In this perspective, the paper provides some empirical basis for the argument that pro-cyclical fiscal policy does not assist in dampening the GDP shocks. Being focused on empirical, contextualized analysis, this study highlights the cyclical dynamics of macroeconomic aggregates and only offers conjectures as to the reasons behind the behavior of fiscal policy and its influence on the macroeconomic output. (C) 2014 The Authors. Published by Elsevier B.V.