The Effects of the COVID-19 Outbreak on the Turkish Economy and Macroeconomic General Equilibrium Analysis of Policy Alternatives

The main purpose of the project is to predict the economic effects of the COVID-19 epidemic crisis in Turkey and to design realistic income and fiscal policies that will minimize the negative effects of the crisis and present them to the Turkish political economy literature and to the agenda of all relevant social stakeholders. The findings show that, as a result of the first instantaneous effects, the GDP may decrease by 27%, the unemployment rate may be 34%, and the ratio of the budget deficit to GDP may increase up to 12%, relatively, by the end of 2019. Thanks to the support packages that will reach 2.9% of the 2019 national income with the program we call the Labor Income Support program, the decrease in GDP can be reduced to 16% and the increase in unemployment to 17%. With this package, the ratio of budget deficit to GDP can be kept around 6%. Elements of the said Labor Income Support package; • supporting people who lost their jobs in the crisis with a continuous income transfer corresponding to 50% of the average wage of the formal workforce, • supporting small and medium-sized companies and the self-employed segment, • It can be summarized as an increase in public consumption expenditures by 20%. It is foreseen that these positive effects will reduce the contraction in national income and that much more effective and positive results can be obtained in the fight against unemployment. The economic crisis caused by the COVID-19 epidemic has affected Turkey in a conjuncture where the effects of the 2018 financial crisis have not been fully resolved and the frayed balances of the national economy have not been repaired yet. In this environment of high inflation and uncertainty in foreign exchange, the room for maneuver for the implementation of effective public policies has narrowed. Considering these conditions, an alternative economic support package is being considered that can counter the negative effects of the epidemic. The priority of this package is to support households' labor income. It is envisaged that this will be implemented in the form of direct income support from the public sector.