Do Private Savings Offset Public Savings in Turkey

The issue of whether public savings offset private savings, and visa vice, has important implications for the effectiveness of fiscal policy. This study examines long-run relationship between public and private savings rates using annual Turkish data for the period 1975-2005. The result of Engle-Granger cointegration test has shown that there is no long-run relationship between private and public savings ratios. However,once endogenously determined structural break is allowed, the test results confirm the existence of the cointegration relationship between private and public savings. Econometric estimation of the offset coefficients using both FMOLS and DOLS yields values of between -0.11 and -0.82. The results also indicate that the potency of fiscal policy significantly reduced with the liberalization of financial markets.Keywords: Savings, Offset coefficient, Ricardian Equivalence, DOLS, FMOLS. JEL Classificiation: E6, H6, E21