| Sumario: | A study was conducted to examine the intertemporal relationship between government spending and taxation in Turkey. Data were drawn from the IMF data tape, International Financial Statistics, for the period 1967-94. Engle-Granger and Johansen tests consistently support the existence of one nonzero cointegrating vector representing a stable long-run relationship between government spending and taxes in Turkey, and multivariate error correction models show that taxes unidirectionally Granger-cause negative changes in government spending, both in the short term and in the long term. Therefore, in Turkey, raising taxes is perhaps the best solution to the current budget deficit situation.
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