Growth effects of local government spending: evidence from outer space

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2016

Author

Ceylan, Elif Semra

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In this study, we estimate the local government spending multiplier for Turkey using the province-level variation in government spending for 2002-2013. The main diffculty is that there is no official province-level GDP reported for this period. We use the night lights data as a proxy to construct province-level GDP indices for Turkey between 2002-2013. Employing an instrumental variables (IV) strategy motivated by the structure/timing of local elections in Turkey, we find that 1 Turkish lira public investment generates up to 2.7 Turkish lira national income. This suggests that the fiscal multiplier is around 2.7 in Turkey, which is above the fiscal multiplier estimates reported in the literature. This results contributes to the recent debates on the effectiveness of government spending by showing that fiscal policy has a great potential to lift economic growth. In this study, we estimate the local government spending multiplier for Turkey using the province-level variation in government spending for 2002-2013. The main diffculty is that there is no official province-level GDP reported for this period. We use the night lights data as a proxy to construct province-level GDP indices for Turkey between 2002-2013. Employing an instrumental variables (IV) strategy motivated by the structure/timing of local elections in Turkey, we find that 1 Turkish lira public investment generates up to 2.7 Turkish lira national income. This suggests that the fiscal multiplier is around 2.7 in Turkey, which is above the fiscal multiplier estimates reported in the literature. This results contributes to the recent debates on the effectiveness of government spending by showing that fiscal policy has a great potential to lift economic growth.

Subject Keywords

Municipal lighting., Expenditures, Public., Municipal government., Government spending policy.

URI

http://etd.lib.metu.edu.tr/upload/12620407/index.pdf
https://hdl.handle.net/11511/26027

Collections

Graduate School of Social Sciences, Thesis

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Citation Formats

E. S. Ceylan, “Growth effects of local government spending: evidence from outer space,” M.S. - Master of Science, Middle East Technical University, 2016.