Transfer Expenditures and Their Economic Impact
Transfer expenditure is a type of expenditure against which there is no corresponding transfer of goods, services or production factors. Although these expenditures do not directly increase the goods, services or production factors, they can contribute to the accumulation or improvement of outputs/factors in the economy (Tables 6.1 and 6.2).
Table 6.1 Classification of transfer expenditures according to Brochier and Tabatoni
| Direct and in-direct transfer expenditures | While direct transfers increase cash revenues directly, indirect transfers are expenditures that decrease the prices of goods and services that do not increase revenues directly. A large part of public debt interest, social aid and security expenditures are among direct transfer expenditures. Cheap raw materials, tax reductions, tax benefits and financial assistance are indirect transfer expenditures |
| Revenue transfers and capital transfers | It is a distinction made to indicate income transfers that increase the income/profits of consumers and producers directly and indirectly, and capital transfers such as war indemnities, premiums for housing construction, supply of free land |
| Efficient and inefficient transfers | Transfers directed towards production and increasing total revenue are efficient, whereas consumption-oriented transfers are inefficient. In general, economic transfers such as subsidies and research and development expenditures are efficient; social transfers such as widow’s and orphan’s pensions, retirement pensions and scholarships are considered inefficient |
Source Akbulut (2013)
Table 6.2 Turkey 2020 growth rate forecasts
| Before COVID-19 | After COVID-19 | Difference | |
| IMF | 3.0 | -5.0 | -8.0 |
| World Bank | 3.5 | 0.5 | -3.0 |
| EIU | 3.8 | -3.5 | -7.3 |
| Average | 3.4 | -2.7 | -6.1 |
Source Deloitte (2020a)
Transfer expenditures are also classified as economic, social, financial and debt interest payments according to their purposes. Apart from financial transfers and debt interest payments, which are transfers from the central government to local governments, economic and social transfers stand out in the analyses.
Economic transfers are practices such as support and subsidies to businesses/sectors, tax reductions, tax deferrals, which have economic and financial purposes. Social transfers are expenditures that protect individuals and households from certain risks and meet needs in case the risk occurs. Food aid and vouchers, green cards (health card for uninsured people in Turkey), pensions, widow’s and orphan’s pensions, scholarships, disability pensions, housing benefits and unemployment payments are within the scope of social transfers (Akbulut 2013).The value of the expenditure multiplier is lower than the consumption and investment expenditures, as the transfer expenditures occur not at the time they are made, but during the consumption of the income. However, the composition of transfer expenditures is also important in terms of its effects on the economy. If the social transfers made in order to ensure a minimum income standard are made to the low-income group, the multiplier effect will be more because this segment has a higher spending tendency. Similar to investment expenditures, economic transfers will support private sector investments and increase supply in the long run (Pinar 2014). Economic transfers contribute to the increase the production of certain goods and services and encouraging their consumption, protection of agricultural areas, improvement of exports and development of underdeveloped regions (Mutluer et al. 2007). With the support and encouragement of public transfer expenditures, bottlenecks on the supply side can be eliminated and the output level can be increased by providing financial assistance to production areas. Thus, inflationary trends can be prevented and long-term supply opportunities can be increased (Tokatlioglu and Selen 2017).
The share of current transfers item, which includes economic and social transfers, in the central government budget of Turkey is high, 39% in 2017 and 2018. In 2018, the total budget expenditure was approximately 830 billion TL, of which 323 billion TL was current transfers. The most important item of current transfer expenditures was “health, retirement and social assistance expenditures”, approximately amounting to 150 billion TL (18% of GDP). 75 billion TL (9% of GDP) was allocated to agricultural and other incentives (Qetinkaya and Aslanta§ 2019).
6.3
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