The Asymmetric Effects Of Government Spending Shocks

The purpose of this paper is to assess if expansionary and contractionary government spending shocks have an asymmetric effect for Turkish economy. Keynesian theory suggests that increase in government spending stimulate aggregate demand and increases output. However, there might be asymmetry for the effect of fiscal policy on economic outcome due to stickiness of prices, perception of changes (permanent versus transitory) and nearness to full employment. This paper assesses this asymmetry for Turkey by using quarterly data from 1987:I to 2001:I. The empirical evidence reported here reveals that private consumption and investment decrease in the face of expansionary government spending shocks; however, they either do not change or decrease very little under contractionary government spending shocks.