The Functional Composition of Public Expenditure and Inflation Dynamics in Türkiye: A Fourier Toda–Yamamoto Causality Analysis under Structural Breaks
DOI:
https://doi.org/10.37241/jatss.2026.143Keywords:
public expenditures, inflation dynamics, fourier toda–yamamotoAbstract
Introduction: This study examines the relationship between inflation and the functional composition of public expenditures in Türkiye, emphasizing that fiscal policy affects price dynamics not only through its size but also through its allocation across expenditure categories. Given Türkiye’s experience with persistent inflation and policy regime shifts, understanding how different public spending components interact with inflation is of particular importance.
Method: The analysis employs quarterly data covering the period 2006Q1–2025Q2 and includes the shares of general public services, economic affairs, health, education, and social protection expenditures in GDP. To account for mixed integration orders and smooth structural changes without prior knowledge of break dates, the study applies the Fourier-augmented Toda–Yamamoto causality approach.
Results or Findings: The results reveal that the inflationary effects of public expenditures differ across functional categories. Unidirectional causality is identified from General Public Services and Health expenditures to inflation. In contrast, bidirectional causal relationships are detected between inflation and Economic Affairs, Education, and Social Protection expenditures, indicating the presence of feedback mechanisms.
Discussion or Conclusion: The findings suggest that inflation dynamics in Türkiye depend critically on the functional composition of public spending rather than aggregate expenditure alone. From a policy perspective, expenditure reallocation strategies that consider category-specific inflationary effects may enhance the effectiveness of fiscal policy in supporting price stability and macroeconomic sustainability.
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