Macroeconomics Of Turkey’s agricultural reforms: an intertemporal computable general equilibrium analysis

This paper reports on a study examining the set of structural reforms launched in Turkey to address elimination of producer price subsidies in its agriculture, and replacing them with a targeted direct income transfer program. The study investigates analytically viable options of the proposedagricultural-cum-fiscal reform and adjustment under conditions of a heavy domestic debt burden and persistent foreign trade deficit. Specifically, it investigates the process of Turkey’s recent move towards direct income support in agricultureanalyses the formal links between the public sector fiscal balances, accumulation patterns, dynamic resource allocation and consumer welfare under long termhorizonanalyses the the aggregate macro and sectoral micro consequences of agricultural pricereforms and public debt management tosimulate various policy alternatives in smoothing out public debt over future generationsThe study uses adynamic general equilibrium model based on intertemporally optimizing agentsto study alternative agricultural support policies for the Turkish economy. Key features of themodel are its explicit recognition of the distortionary consequences of excessiveborrowing requirements of the public sector through increased domestic interestcosts; and endogenous determination of the private work force participationdecisions in response to changing subsidy and income support incidences.The model results suggest that even though there are expected modest welfaregains of consumers’ intertemporal efficiency in return to the switch from indirectprice supports to direct income transfers in the Turkish agriculture, therepercussions of these policies on the rural economy and aggregate grossdomestic product are likely to be deflationary. Furthermore, the expected fiscalexpenditures of the advocated program continue to exert significant pressure onthe fiscal balances of the government and underscore the importance of the costof debt servicing in attaining macroeconomic balances.