Alternatives in debt management : investigation of Turkish debt in an overlapping generations general equilibrium framework

Abstract

The purpose of this dissertation is to investigate the fiscal policy alternatives on debt management, cohort welfare and growth for the Turkish economy. The dissertation is decomposed into two major parts. The first part outlays the issue of debt management and examines the macroeconomic effects of the current austerity program in Turkey, and illustrates the sensitivity of the program targets to growth shocks. The second part takes one step further to develop fiscal policy alternatives on debt management with emphasis on “productive expenditures” of the public sector and endogenous sources of growth. To this end, a large-scale, overlapping generations general equilibrium model with intertemporally optimizing agents and open capital markets, calibrated to the Turkish economy in 1990s, is developed. The results indicate that the current fiscal program based on the primary surplus objective succeeds in constraining the explosive dynamics of debt accumulation, yet suffers from serious trade-offs on growth and fiscal targets. The main suggestion of this study is that alternatives of fiscal programming do exist and it is important to carefully weigh the dilemmas and merits of each of these alternatives.