DEFENCE SPENDING and POLITICAL BUSINESS CYCLES IN TURKEY

Ege Akademik Bakış / Ege Academic Review 10 (2) 2010: 487-502 DEFENCE SPENDING and POLITICAL BUSINESS CYCLES IN TURKEY Assist. Prof. Dr. Şennur SEZGİN, Pamukkale University Faculty of Economics and Administrative Sciences, ABSTRACT The allocation and distribution of government resources is a political process by it is nature. Considerable amount of government spending goes to defence expenditure in Turkey. So, is defence spending affected from political business cycle? To answer this question, this study analyses relationship between political business cycle and total and disaggregate defence spending using regression analyses. This study find that there is no trace of political business cycle over defence spending in Turkey. Furthermore, this study indicate that military coup and increasing of terrorist incidents are cause an increase on defence expenditure. Key Words: Political business cycle, Defence spending, Turkey, 1 . INTRODUCTION The political business cycle (PBC) literature has developed in the last three decades and links between politics and economics in several ways. According to PBC theory, country macroeconomic condition result of government policies and the state of the economy has affected voting behavior. Therefore, in democratic society governments would try to improve the economy before election in order to enhance re-election chances. Implications of the theories are searched in many countries (especially developed countries). Although many more studies about developed countries, there are a few studies in developing countries. The allocation and distribution of government resources is a political process by it is nature. Turkey defence spending shows some important characteristics and considerable amount of government spending goes to defence expenditure in Turkey. Therefore, the relationship between defence spending and political business cycle is particularly important, since Turkey has allocated considerably percentage of resources to defence spending for along time. Besides, how Şennur SEZGİN political development affected this expenditure is also important. Recently, defense literature also focus on to incorporate voter behaviors into military expenditure models. Therefore, these study focus on political business cycle and defense spending in Turkey, especially in the 1958-2008 period. PBC literature developed four types of model of PBC. These are: Opportunistic, rational opportunistic, partisan and rational partisan model. These study focus on opportunistic political business cycle. Partisan PBC's will not examine in this paper. Because partisan model of political business cycle are not relevant in the Turkish context. Political parties have different ideology from each other. Left wing parties more concern diminishing of the employment, while right wing parties priorities are reduction of inflation. But these priorities can not feet into Turkish condition. Because there are no clear definition of ideology which is based on specific economic policy. Furthermore, Partisan PBC models have usually seen two party system countries. It is not possible to separate political parties economy policies in Turkey. Sometimes left parties priorities can be inflation or unemployment can be come more important than inflation for right parties. Morever, Sayan and Berument (1997) study can not find any significant evidence of partisan PBC's in Turkey. For this reason, this study examines the validity of PBC within the Turkish context and it's relation to defense spending. Our study differed from previous studies on three ways. First, there are a lot of studies testing the PBC hypothesis for developed countries, but there is a little studies for developing countries. This paper aims to fill this gap in the literature. In fact, our study was one of the first empirical studies to discuss political business cycles and defense spending relations in Turkey. Previous study did not consider military spending as a depended variable. Our study take military expenditure as a dependent variable and growth, population, number of terrorist incidents and election time is independent variable. Secondly, we used a large data set which covers from 1958 to 2008 and used important economic policy instrument and indicators. Third, in many previous studies, total military spending is just taken into analyze. But our study beside total military spending, disaggregate namely equipment and non-equipment military spending will also consider. This study organize as follows. Political business cycle models and country application will be given section two. Following section will elaborated history of Turkish election. Turkish defence expenditure development will be given section four. Fifth section devoted data, model and empirical analysis. In last section some conclusion driven. 2. POLITICAL BUSINESS CYCLE The term "political business cycle" refers to any influence that politicians may have on the economy. This definition may be too broadening. If we define more specifically, political business cycle refers incumbent government deliberately stimulate the economy in order to improve their re-election 488 DEFENCE SPENDING and POLITICAL BUSINESS CYCLES IN TURKEY chances. There isn't one model to compromise PBC: literature has developed four different type of PBC to determine the existence of PBC's , These models are: Opportunistic political business cycle, rational opportunistic political business cycle, partisan political business cycle, rational partisan political business cycle. Opportunistic PBC model was developed by Nordhaus (1975) suggests that incumbent government try to maximize only their probability of re-election, or probability of "survival" in office. Accordingly, incumbent governments create a seemingly strong economy before the elections with decreasing unemployment and increasing growth rates of the economy and inflation. After the election it applies opposite economy policy.(Asutay, 2004; 2). Nordhaus (1975) original model is based on the following assumption: (Alesina, Cohen and Roubini (1991), Alesina ve Roubini (1992), Alesina and other; 1997, s.20) 1. 2. 3. 4. 5. 6. The economy can be described by an "expectation-augmented" Phillips curve. voters have adaptive expectations politicians are identical. They only care about holding office, and they do not have "partisan objectives". politicians control a policy instrument which directly effects aggregate demand. That means inflation can be controlled directly by policy makers. voters are naive and retrospective: this means they assess the incumbent government according to positive high growth, low employment and low inflation; they heavily relay on past observation. They do not understand the economic model (the Phillips curve) that relates inflation and unemployment. election time is exogenously fixed. Based on these assumption, Nordhaus model have following empirical implications. (Lee; 1997;8)    e (...truncated)