Disinflation, Fiscal Sustainability, and Labor Market Adjustment in Turkey

This paper analyzes the effects of monetary policy and fiscal adjustment on output and unemployment in Turkey. The model on which the analysis is based accounts for rural-urban migration, a large urban informal sector, flexible exchange rates, a dollarized banking system, and interactions between default risk on government liabilities, credibility, and inflation expectations. The short- and long-run effects of a rise in official interest rates and tax increases are analyzed. The results highlight the importance of accounting for the link between default risk and credibility in understanding the real and financial effects of macroeconomic adjustment.

Bibliographic Details

Main Authors:	Agénor, Pierre-Richard, Jensen, Henning Tarp, Verghis, Mathew, Yeldan, Erinc
Language:	English
Published:	World Bank, Washington, DC 2006-01
Subjects:	ACCOUNTING, ADJUSTMENT PROGRAM, ADVERSE EFFECT, ADVERSE EFFECTS, AGGREGATE DEMAND, AGGREGATE SUPPLY, AGRICULTURE, AVERAGE WAGES, BALANCE OF PAYMENTS, BANK DEPOSITS, BANK LENDING, BANK RESTRUCTURING, BANKING SECTOR, BARGAINING POWER, BOND MARKETS, BORROWING, BUDGET CONSTRAINT, BUDGET CONSTRAINTS, BUDGET DEFICITS, BUSINESS CYCLE, CAPITAL NEEDS, CENTRAL BANK, COLLECTIVE AGREEMENTS, COMMERCIAL BANKS, CORPORATE INCOME TAX, DEBT, DEBT SERVICE, DEFAULT RISK, DISINFLATION, DOMESTIC BORROWING, DOMESTIC INFLATION, DOMESTIC MARKET, DOMESTIC PRICE, DOMESTIC PRICES, ECONOMIC RESEARCH, ELASTICITY, ELASTICITY OF SUBSTITUTION, EMPLOYEE, EMPLOYMENT, EMPLOYMENT LEVELS, EMPLOYMENT PROBABILITY, EMPLOYMENT PROTECTION RULES, EQUATIONS, EQUILIBRIUM, EXCHANGE RATE, EXCHANGE RATES, EXPECTED WAGE, EXPECTED WAGES, EXPORTS, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL SECTOR, FIRING COSTS, FISCAL ADJUSTMENT, FISCAL DEFICIT, FISCAL MANAGEMENT, FISCAL POLICY, FISCAL REFORMS, FISCAL SUSTAINABILITY, FOREIGN BORROWING, GDP, GNP, GOVERNMENT BONDS, GOVERNMENT BUDGET, GOVERNMENT DEBT, GOVERNMENT SUBSIDIES, GROWTH RATE, INCOME, INCOME TAXES, INFLATION RATE, INFORMAL ECONOMY, INFORMAL LABOR MARKET, INFORMAL SECTOR, INTEREST RATES, INTERNATIONAL MIGRATION, JOB SEARCH, JOB SECURITY, JOB TURNOVER, LABOR DEMAND, LABOR FORCE, LABOR FORCE PARTICIPATION, LABOR LAWS, LABOR MARKET, LABOR MARKET ADJUSTMENT, LABOR MARKET REGULATIONS, LABOR MARKET SEGMENTATION, LABOR MARKETS, LABOR MIGRATION, LABOR REGULATIONS, LABOR SUPPLY, LIQUIDITY, MARGINAL PRODUCT, MINIMUM WAGE, MINIMUM WAGE LAW, MONETARY POLICY, NOMINAL INTEREST RATE, OPEN UNEMPLOYMENT, PAYROLL TAX, PAYROLL TAXES, PRINCIPLE, PRIVATE FIRMS, PRIVATE GOODS, PRIVATE SECTOR, PRIVATE SECTOR WAGE, PRIVATE SECTOR WAGES, PROBABILITY OF DEFAULT, PRODUCTION, PRODUCTION FUNCTION, PRODUCTION INPUTS, PRODUCTION SIDE, PRODUCTIVE SECTOR, PRODUCTIVITY, PROFIT MAXIMIZATION, PUBLIC, PUBLIC CAPITAL, PUBLIC DEBT, PUBLIC EMPLOYMENT, PUBLIC GOOD, PUBLIC GOODS, PUBLIC SECTOR, PUBLIC SECTOR BORROWING, PUBLIC SECTOR BORROWING REQUIREMENTS, PUBLIC SECTOR EMPLOYMENT, PUBLIC SECTOR WAGES, PUBLIC SERVICES, PUBLIC TRANSPORTATION, PURCHASING POWER, REAL EXCHANGE RATE, REAL GROWTH, REAL INTEREST RATE, REAL INTEREST RATES, REAL VARIABLES, REAL WAGE, REAL WAGES, RELATIVE PRICES, RETURNS TO SCALE, RISK PREMIUM, ROADS, SAVINGS, SERVANTS, SEVERANCE PAYMENTS, SKILLED WORKER, SOCIAL SECURITY, SOCIAL SECURITY CONTRIBUTIONS, STATE-OWNED ENTERPRISES, STRUCTURAL ADJUSTMENT, SUPPLY CURVE, TAX REFORM, TAX REVENUE, TEMPORARY WORKERS, TOTAL EMPLOYMENT, TRADE POLICY, TRADE UNIONS, TREASURY, TREASURY BILLS, UNEMPLOYED, UNEMPLOYMENT, UNEMPLOYMENT BENEFIT, UNEMPLOYMENT INSURANCE, UNEMPLOYMENT RATE, UNPAID FAMILY WORKERS, UNSKILLED LABOR, UNSKILLED WORKERS, URBAN ECONOMY, URBAN WORKERS, VALUE ADDED, VAR MODELS, WAGE BARGAINING, WAGE BILL, WAGE RATES, WAGE SET, WAGES, WEALTH, WORKER, WORKING CAPITAL,
Online Access:	http://documents.worldbank.org/curated/en/2006/01/6523042/disinflation-fiscal-sustainability-labor-market-adjustment-turkey https://hdl.handle.net/10986/8829
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