Compatibility or Dichotomy Between Fiscal Discipline and Growth: Are There Lessons to Be Drawn From the Turkish Experience?

Abstract

Ever since the outbreak of the sovereign debt crisis, coordinating economic growth with fiscal sustainability has been on the European agenda. Fiscal discipline is a pivotal element of macroeconomic stability and of fiscal as well as public debt sustainability. It is thus necessary to focus on the role played by fiscal rules in fiscal consolidation. The approach that is currently in vogue is based on rules-based fiscal policy. The question to be answered, therefore, is whether economic growth and fiscal discipline can be reconciled? In other words, how does one engage the economy on a growth path in the context of fiscal austerity? In times of financial and economic crisis can fiscal rules and discipline be considered a universal prescription to overcome macroeconomic distortions and open the door to economic growth, or is this just an illusion? This paper investigates the problem of coordinating economic growth with fiscal sustainability and discipline. Within this framework Turkey seems to be an interesting case to study, since in the aftermath of the severe financial/economic crisis of 2001, the government’s economic policy has been based on coordinating economic growth with fiscal discipline.