THE LINKAGE BETWEEN FISCAL POLICY AND NON-PERFORMING HOUSEHOLD LOANS IN TURKEY

Abstract

Frequent changes in fiscal policies are the main cause of credit risk. To prevent households from increasing their non-performing loans, the government can use various policies and instruments. One of these tools is tax regulations, with a particular focus on the value-added tax. This paper examines whether tax poli- cies have affected non-performing household loans in Turkey over the period from 2017 to 2021. To acquire meaningful empirical results, the Autoregressive Distributed Lag (ARDL) cointegration model have been ap- plied. The results of analysis indicated that the effect of tax regulations on non-performing household loans is quite strong. It can be demonstrated that the strength of the income effect generated by tax cuts might be robust.