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Unraveling Fiscal Threads

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19 views4 pages

Unraveling Fiscal Threads

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Sam
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We take content rights seriously. If you suspect this is your content, claim it here.
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Unraveling Fiscal Threads: The Impact of Government Borrowings on

Economic Dynamics

Department of Business Administration, University of the People

BUS 1104- 01: Macroeconomics

Felicia Thomas 14, 2024


Introduction :

In this assignment, I will discuss the Impacts of the Global Crisis on the Turkish Economy
and the policy responses including government spending and taxation that contributed to
shaping fiscal policy in Turkey. I will additionally explain the roles of these components in
addressing the specific economic challenges faced by the country during that period.
Furthermore, I will analyze the implications of government borrowing on investment, trade
balances, and economic growth within the selected event and based on it I will advocate for or
against the government borrowing strategies for economic growth.
advocate for or against the government borrowing strategies for economic growth. Emphasize
their effects on the national economy, providing a well-supported argument.

government spending and taxation contribution to shaping fiscal policy:

The authorities adopted a wide range of policy measures in order to mitigate the impact of the
2008-2009 financial crisis. Initially, starting from the beginning of 2008, monetary measures
were adopted, Banking Regulation and Supervision Agency (BRSA), in coordination with the
Central Bank, implemented several measures in order to control the possible risks that might
have occurred in the banking sector during the crisis.
When it comes to tax Policies, there was VAT and Special Consumption Tax reductions and
cuts in corporate tax rates varying to the regions and sectors in order to Encourage
consumption and investment.
For the Private sector incentives, There were Interest rate subsidies and payment of
employers’ share in employees social security payments by Treasury in order to protect firms
against bankruptcy and promoting them to invest.
Additionally, for Employment support, Exemptions in the social security payments of workers
were made as well as employing part-time workers whose allowances were paid by Turkish
Employment Organization, and this aimed towards counteracting against rising
unemployment and its social costs.
Finally, access to global capital was done by Tax amnesty for all unrecorded assets if they are
declared and Tax relief on credits obtained from foreign sources as well as Tax exemptions on
the foreign assets held by the residents providing that these assets were transferred to Turkey
Softening the impact of sudden stops in capital account.
Furthermore, the Turkish government increased its spending on various programs and projects
to stimulate the economy. This included infrastructure projects, subsidies for industries
affected by the crisis, and social welfare programs to support the most vulnerable populations.

the implications of government borrowing on investment, trade balances,


and economic growth:

Government borrowing during the 2008-2009 financial crisis in Turkey had several
implications for investment, trade balances, and economic growth.
Firstly, increased government borrowing to finance stimulus measures could crowd out
private investment. High government borrowing can lead to higher interest rates, making it
more expensive for businesses to borrow money for investment purposes. This could
potentially dampen overall investment levels in the economy.
Additionally, the impact on trade balances depends on how the borrowed funds are used. If
the borrowed funds are used for productive investments that enhance export capacity or
competitiveness, it could lead to improved trade balances. However, if the borrowed funds are
used for consumption or inefficient projects, it may not have a positive impact on trade
balances.
Finally, government borrowing can stimulate economic growth in the short term by boosting
aggregate demand through increased government spending. However, if borrowing is not
sustainable or if the funds are not used efficiently, it can lead to higher debt levels and
potential long-term negative impacts on economic growth.

the government borrowing strategies for economic growth:


Government borrowing can be a powerful tool for stimulating economic growth and
addressing economic challenges, but it must be used judiciously and in conjunction with other
policy measures to ensure long-term fiscal sustainability. In the case of Turkey during the
2008-2009 financial crisis, borrowing was a necessary and effective strategy to support the
economy, but careful management and monitoring of debt levels were essential to avoid long-
term negative consequences.

References :
Cömert , & Çolak. (2014, December). The Impacts of the Global Crisis on the Turkish
Economy and Policy Responses. Economic Research Center, ERC Working Papers in
Economics.

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