Efficiency of public expenditures in Turkey: when direct transfers really contribute to citizens’ welfare?

This paper uses a general equilibrium model of a small open economy to explore the implications of different public expenditure policies. We allow for three types of public expenditures, government can invest in public capital stock thereby making production enhancing public expenditures, make utility or welfare enhancing public expenditures through supply of public services and direct transfers to consumers. In this context, our main concern will be to analyse the optimality of government’s choice among these alternatives regarding the trade-off between growth and welfare, for a given level of fiscal burden as well as the trade-off between tax weight and growth in one hand and welfare on the other hand.