Investigating the Effect of Fiscal Variables on Iran's Economic Well-being

Document Type : Scientific paper

Authors

1 Economics Science, University of Mazandaran, Babolsar, Iran,

2 Master Student in Economics Science, University of Mazandaran

3 4 Master

Abstract

Expenditures and tax revenues are among the most important fiscal instruments available to the government to affect the economy. Considering the prevailing conditions in economies, governments can create acceptable economic prosperity by determining and applying fiscal policies. The role of government fiscal instruments on economic welfare has been an issue that, contrary to its importance, has been less considered in domestic and foreign studies. Therefore, the present study aims to calculate economic well-being during the last five decades and analyze its determinants. For this purpose, first, the index of economic well-being has been calculated based on four dimensions of consumption flows, wealth stocks, economic inequality and economic insecurity. The results of calculating the index of economic well-being show that the highest level of economic well-being with 174 is related to 2017, and the lowest level with 71 is related to 1971. Then, the effect of government fiscal instruments and other variables in the form of two models using the autoregressive distributed lag (ARDL) model from 1971 to 2020 has been examined. The long-term results of estimating the research model in two formats show that the size of the government and the ratio of current expenditures to construction have a direct (favorable) and reverse (unfavorable) effect on economic well-being, respectively. Direct and indirect taxes have favorable and unfavorable effects on economic well-being, respectively. However, no significant effect has been found for total taxation. Also, economic growth and real per capita income directly (favorably) and inflation reversely (unfavorably) affect economic well-being. Based on the results of this study, it is suggested that economic policymakers for increasing the level of economic well-being in Iran, implement an expansionary fiscal policy with an emphasis on increasing construction spending (to the extent that it does not replace private investment) and reducing indirect taxes.

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Main Subjects

References

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Macroeconomics Research Letter
Volume 17, Issue 34
September 2022
Pages 7-38

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History

  • Receive Date: 25 April 2022
  • Revise Date: 24 July 2022
  • Accept Date: 20 October 2022

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