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Turkey Public Finance Review : Turkey in Transition--Time for a Fiscal Policy Pivot?Turkey has experienced rapid growth and
 improved social outcomes over the past decade. Per-capita
 income in United States dollar (USD) terms tripled during
 the first decade of the 21th century, and Turkey is now the
 world's 17th largest economy. Fiscal policy was an
 important component of the reform program that delivered
 these successes. Prudent fiscal policy also provided the
 fiscal space to soften the blow of the global economic and
 financial crisis in 2008-2009. This report documents the
 central role played by fiscal policy over the last decade
 and presents simulation results from a computable general
 equilibrium model that will help inform the future direction
 of fiscal policy to support sustained high growth. The
 dynamics of fiscal outcomes and private investment and
 savings raise a series of tradeoffs for policy going
 forward. The analysis in this report suggests that public
 investment can crowd-in private investment and promote a
 more sustainable growth path. Government revenue dynamics
 present another set of trade-offs. These fiscal trade-offs
 are likely to be exacerbated as the structural
 transformation of Turkey's economy slows down.
 Structural reforms can support the fiscal policy pivot,
 particularly by strengthening the supply side of the
 economy, for instance through an increase in female labor
 force participation.
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Capital Will Not Become More Expensive as the World AgesAging of populations and convergence between developed and developing countries in per capita incomes are shaping the evolution of saving, investment, capital flows, and, in particular, the cost of capital. When considering these trends, the existing literature argues for either continued, low interest rates, or sharply rising ones. This paper presents an alternative view: modest rises in interest rates, which result from a combination of increases in the global weight of high-saving developing economies (limiting declines in global saving), and decelerations in the rate of growth in developing countries (constraining upward pressure in global investment). For the majority of countries, slowing capital demand resulting from decelerating growth, coupled with structural changes that influence its attractiveness as a destination for capital, moderate increases in interest rates. Changes in key assumptions do not alter this view. More specifically, the small rise in interest rates persists even in a scenario where growth in developing countries decelerates more slowly, or when elasticities governing the behavior of saving and investment are varied.
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Estimating the Economic Opportunity Cost of Capital for Public Investment Projects : An Empirical Analysis of the Mexican CaseThis paper offers an assessment of the
 methodologies employed to estimate the economic opportunity
 cost of capital for public sector projects, relying on the
 Mexican case for an applied empirical exercise. The
 traditional weighted cost of capital (top-down) approach
 used in the estimation of Mexico's economic opportunity
 cost of capital is reviewed and compared to the supply price
 (bottom-up) approach. With respect to previous studies using
 the top-down approach, this paper explores the contribution
 of domestic savings and expands the analysis to include a
 more detailed examination of the available macroeconomic,
 labor, financial, and tax information. The re-estimated
 top-down economic opportunity cost of capital for Mexico
 comes to 10.4 percent. To confirm these results and provide
 additional insights regarding the alternative bottom-up
 approach, the economic opportunity cost of capital is
 estimated using the supply price plus externalities method.
 For the case of Mexico, this paper recommends using a
 combination of estimation models (both the top-down and
 bottom-up approaches) to check the consistency of results
 and re-estimating the economic opportunity cost of capital
 every five years to accommodate for macroeconomic and fiscal
 changes. More broadly, the paper acknowledges the
 complexities involved in the estimation of the economic
 opportunity cost of capital for public investment projects
 and underlines the relevance of additional considerations,
 such as changes in global economic trends and country risk
 ratings, tax distortions, financial sector improvements, the
 impact of reforms, and data availability.