An Analysis of Fiscal Policy in Türkiye using the Goodwin–Minsky–Keen Model and System Dynamics

Minsky’s Financial Instability Hypothesis emphasises the importance of financial relationships and capitalists’ debt in the economy. Keen developed a nonlinear mathematical model based on Goodwin’s growth model, integrating private debt, the financial sector, and government intervention using Minsky’s framework. The governmental aspect of the Goodwin–Minsky–Keen (GMK) model is highly relevant from a public finance perspective, as fiscal policy instruments such as taxation, public expenditure, subsidies, and capital transfers can affect private sector financial conditions and overall economic stability. This study aims to examine the effects of fiscal policy on the stability of the Turkish economy by using the GMK model and system dynamics approach. We simulate two model scenarios, with and without government intervention, using real data from the Turkish economy, and evaluate them under different conditions. The scenarios examine changes in interest rates, tax rates, and government capital allocations to see what impact these have on private debt, capital stock, and output. The results indicate that the model with government intervention exhibits more desirable dynamic behaviours in many economic variables than the model without government intervention. Taxation and capital transfers particularly affect trends in private sector debt, capital growth, and production. The results suggest that effective fiscal policy interventions may be effective in improving economic stability and reducing the financial vulnerability of Türkiye. The study demonstrates the utility of system dynamics in capturing nonlinear Post-Keynesian fiscal dynamics in emerging economies. • • • • •