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Turkey’s employment subsidy program under the great recession: a general equilibrium assessment

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  • A. Erinc Yeldan

Abstract

The objective of this paper is to provide an impact analysis of the macroeconomic consequences of the employment subsidization programs in Turkey implemented under the post-2008 crisis period. To this end, an applied general equilibrium model (of the computable general equilibrium – CGE variety) is utilized to investigate the production, incomes generation, and aggregate demand components of the domestic economy. The analysis highlights the rather limited returns to the subsidization package, and argues that much of this was due to the dis-equilibriating and fragile macroeconomic environment under the neoliberal policy framework. The massive drop of domestic savings; a severe mis-alignment in the real exchange rate causing significant appreciation of the domestic currency; rise of the external deficit and of foreign indebtedness along with a severe fall in the total productivity effort were different facets of this poor macroeconomic performance. Thus, an important message of the study is that, had the macroeconomic balances were maintained at their historical averages, and a more competitive exchange rate could have been pursued, as much as threefolds of a gain in aggregate employment could have been generated with the same intensity of the employment subsidization package, in comparison to the historically realized levels.

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  • A. Erinc Yeldan, 2017. "Turkey’s employment subsidy program under the great recession: a general equilibrium assessment," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(2), pages 225-254, March.
  • Handle: RePEc:taf:irapec:v:31:y:2017:i:2:p:225-254
    DOI: 10.1080/02692171.2016.1240154
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    References listed on IDEAS

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    1. Agenor, Pierre-Richard & Jensen, Henning Tarp & Verghis, Mathew & Yeldan, Erinc, 2006. "Disinflation, fiscal sustainability, and labor market adjustment in Turkey," Policy Research Working Paper Series 3804, The World Bank.
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