Evaluating Effects of Fiscal Consolidation Policy on Iran’s Economy

Document Type : Scientific paper

Authors

1 Associate Professor of Economics, Faculty of Economics, University of Mazandaran

2 Professor of Economics, Department of Economics, University of Mazandaran, Babolsar, Iran

3 PhD student of Economics, University of Mazandaran, Babolsar, Iran

Abstract

The aim of this article is to analyze the effect of shocks of fiscal consolidation policy on the macroeconomic variables in Iran. In this regard by using Factor Augmented Vector Auto Regression (FAVAR) method, the effect of shock types of deficit ratio to GDP on important macroeconomic variables including total real GDP growth, inflation, private consumption growth and investment growth over the period 1363: 1 -1394: 4 is investigated. The results of research models show that the effect of fiscal consolidation policy on the macroeconomic variables are different, and it is difficult to provide the same policy tool to affect all variables. The results obtained in one-year, two-year and four-year periods indicate that the fiscal consolidation policy cannot be identified during the one-year period. But in the two-year and four-year periods, the main instrument of fiscal consolidation is deficit-deflation and deficit-free oil. It should be noted that the consumption deficit is calculated as tax revenue minus the consumption expenditure of the government divided by GDP and the deficit without oil as the total state revenue (without oil revenue) minus current expenditures divided by GDP.

Keywords

References

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Macroeconomics Research Letter
Volume 13, Issue 26
November 2018
Pages 57-78

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History

  • Receive Date: 04 July 2018
  • Revise Date: 11 August 2018
  • Accept Date: 15 September 2018

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