The Relationship Between Price Level and Fiscal Policy in Turkey: An Econometrical Analysis of the FTPL Approach

The aim of this study is to investigate the Fiscal Theory of Price Level (FTPL) approach for Turkey and to determine whether monetary and fiscal policy shows a dominant regime characteristic. In this context, an empirical analysis was performed by using 2006: Q1-2015: Q4 period data with the help of Johansen Cointegration Method. According to the results of empirical analysis, it has been determined that fiscal policy is an effective policy in determining the price level in Turkey in the mentioned period because a unit change in the primary budget balance led to an increase of 4,33 units in the general price level. This finding suggests that the FTPL approach is valid for Turkey in the period 2006-2015 and fiscal policy shows the dominant regime characteristic in Turkey in the mentioned period.