An Asymmetric Causality Analysis of the Relationship between Government Expenditure and Unemployment in TurkeyBurcu Yürük, Hakan Acaroğlu
The ongoing debates regarding the optimal government expenditure share have been a critical concern of economic policy for many years. Therefore, determining the share of government expenditure in the economy is important in terms of macroeconomic variables. The relationship between unemployment, which is one of the indicated macroeconomic variables, and public sector size is expressed by Abrams (1999) through the Abrams curve hypothesis. According to this hypothesis, large public sector size increases the unemployment rate. In this study, the validity of the Abrams curve hypothesis in Turkey is being analyzed with Hatemi-J’s (2012) asymmetric causality test that considers the cumulative positive–negative changes of series using the 1985–2019 time series data. In the scope of the work, the use of asymmetric causality analysis is valuable for revealing the hidden causality relationship. According to the findings obtained from the analysis, an asymmetrical causality relationship is found between unemployment positive shock and government expenditure positive shock. An impulse-response analysis was applied to determine the direction of the asymmetric causality relationship, revealing that positive shocks of unemployment increase the positive shocks of government expenditure. The results reveal that the Abrams curve hypothesis is invalid. Therefore, the financial burden of government expenditure in fighting against unemployment should be reduced. Active employment policies aimed at creating employment opportunities should be prioritized for permanently reducing unemployment.
Türkiye’ de Kamu Harcamaları ve İşsizlik Arasındaki İlişkinin Asimetrik Nedensellik AnaliziBurcu Yürük, Hakan Acaroğlu
Optimal kamu harcamaları payının ne olması gerektiğiyle ilgili devam eden tartışmalar uzun yıllardır ekonomi politikasının önemli konuları arasında yer almaktadır. Bu nedenle kamu harcamalarının ekonomi içindeki payının belirlenmesi makroekonomik değişkenler açısından önem arz etmektedir. Söz konusu makroekonomik değişkenlerden biri olan işsizliğin kamu sektörü boyutu ile ilişkisi Burton A. Abrams (1999) tarafından Abrams eğrisi hipotezi ile ifade edilmektedir. Bu hipoteze göre, kamu sektörünün genişlemesi işsizlik oranını artırmaktadır. Bu çalışmada, Türkiye’ de Abrams eğrisi hipotezinin geçerliliği serilerin birikimli pozitif ve negatif değişimlerini dikkate alan Hatemi-J (2012) asimetrik nedensellik testi ile ve 1985-2019 zaman serisi verileri kullanılarak analiz edilmektedir. Çalışma kapsamında asimetrik nedensellik analizinden yararlanılması gizli nedensellik ilişkisinin ortaya çıkarılması açısından önem taşımaktadır. Analizden elde edilen bulgulara göre, işsizlik pozitif şoku ile kamu harcamaları pozitif şoku arasında asimetrik nedensellik ilişkisine rastlanmaktadır. Asimetrik nedensellik ilişkinin yönünü tespit etmek amacıyla oluşturulan etki-tepki analizleri incelendiğinde, İşsizlik pozitif şoklarının, kamu harcamaları pozitif şoklarını artırdığı görülmektedir. Elde edilen sonuç, Abrams eğrisi hipotezinin geçerli olmadığını göstermektedir. Bu nedenle, kamu harcamalarının işsizlikle mücadelede mali yükü azaltılmalıdır. İşsizliğin kalıcı bir şekilde azaltılmasında istihdam yaratmaya yönelik aktif istihdam politikalarına öncelik verilmelidir.
There is a broad difference of opinion among economic schools on the role of the government in affecting the economy. According to the classical economics school, since increases in government expenditure negatively affect the economic growth, limitations of the public domain and an adaptation of the understanding of minimal state intervention are needed. In contrast, the Keynesian view suggests the thesis that increased government expenditure will contribute to economic growth through total demand. For this reason, the relationship of government expenditure, one of the fiscal policy instruments of government, with macroeconomic variables is among the frequently discussed topics in the literature. The relationship between the size of government expenditure and unemployment was first examined by Abrams (1999), who theorized that increased government expenditure raises unemployment for various reasons. Among these reasons, the crowding out effect of the increase in government expenditure on private investments stands out. The Abrams curve hypothesis supports the classical economic view and remains in use in both national and international literature.
An examination of empirical literature reveals that traditional models (Granger causality test, VAR causality test, panel causality test, etc.) are preferred among contemporary scholars. In linear models, the effect of positive and negative shocks is accepted as homogeneous. It was first suggested by Granger and Yoon (2002) that the effects of positive and negative shocks differ. According to Granger and Yoon (2002), traditional methods are insufficient for explaining the hidden cointegration between variables. Similarly, a study conducted by Hatemi-J (2012) asserted that the homogenous acceptance of the relationship between negative and positive shocks limits the potential for the identification of asymmetric causality. The asymmetric causality test allows the comparative examination of negative and positive shocks. In this way, it is claimed that such restrictions disappear. In this study, a causality relationship between government expenditure and unemployment using quarterly time series for Turkey between 1985: Q1 and 2019: Q4 were analyzed using Hatemi-J’s (2012) asymmetric causality method. It is stipulated that the asymmetric causality test exploited within the scope of the study will present a novel perspective from the existing literature in determining the hidden causality relationship that occurs due to positive and negative shocks between variables. In addition, the direction of the asymmetric relationship is determined applying the asymmetric impulse-response analysis developed by Hatemi-J (2014).
According to the empirical findings obtained from the study, a statistically significant asymmetric causality is found between the positive shock of unemployment and the positive shock of government expenditure at the 5% and 10% significance levels. The asymmetric impulse-response analysis reveals that positive shocks of unemployment increases government expenditure positive shocks. These results indicate that the Abrams curve hypothesis asymmetric model framework does not apply in Turkey. The results obtained imply that government expenditure has been used in an attempt to reduce the problem of unemployment in Turkey. In the long run, this case will negatively affect the public economy and cause more problems, i.e., deteriorating resource allocation, decreased efficiency and labor productivity rates, increased budget deficits, etc. These challenges are revealed to be among the structural causes of long-term economic crises. The real struggle against unemployment depends on the achievement of active employment policies. In this context, the direct proportionality of an increase in economic growth with employment is important. An increase in employment as a result of economic growth in Turkey has been insufficient in recent years. This study shows that unemployment cannot be reduced only by economic growth. Therefore, the unemployment problem in Turkey requires a more comprehensive and active strategy.