Abstract
Given the importance of public debt for financial stability and economic progress, this article examines the unstable economic growth rate in Northern Cyprus. The causal relationships between public debt, public expenditures, total capital, consumption, investment, employment, net exports, and GDP growth rate are questioned. This study used annual time series data between 1980 and 2018 obtained from the State Planning Organization. An unrestricted VAR model was used to test the causal relationship of these variables. Findings show that public debt has no direct effect on GDP. However, it indirectly affects the total capital and government expenditures as an independent variable. Except for public debt, all other variables have a value that will affect net exports. Unlike other studies, employment as an independent variable has the value of influencing GDP, total capital, consumption, government expenditures, and net exports as dependent variables. It has been observed that consumption, investment, and government expenditure coefficients have values that will affect GDP. Insufficient control of government practices, the North Cyprus government's inefficient plans to encourage domestic production, insufficient enforcement power of domestic producers, as well as increased capital outflows, increased government debt, and budget deficit are not sustainable models.