The effect of political business cycles on structural change

Abstract

This research provides evidence of political business cycles in Turkey between the 1960s and 2020s. Several political color dummy variables are employed with different dependent variables. While a shift from right-wing party to left-wing party increases the growth of academic freedom and spending of the ministry of culture and health, it lowers military expenditure and spending on religious affairs. However, if the government is formed as a coalition with several parties, it creates an increase in the growth of the transfer expenditure. Then we questioned the impact of the cycle on the total factor productivity and reallocation of labor from low-productivity sector to high- productivity ones. The results of structural change-related models indicate a shift toward the left-wing party increases total factor productivity and between component of labor productivity in the industry, but it lowers the agricultural employment and between component of agriculture. While structural models indicate the presence of an effect, not all of the VAR models do.