Contraction and expansion of fiscal policy and macroeconomic uncertainties in Iran

Document Type : Scientific paper

Author

Faculty of Literature and Humanities, University of Guilan, Rasht, Iran.

Abstract

For a long time, limiting the range of powers of politicians has been associated with many disputes. In relation to monetary policy, economists have agreed to remove this policy from the government and entrust it to an independent central bank. However, the events after the global fiscal crisis of 2007 and the COVID-19 pandemic have highlighted the lack of consensus regarding the effects of fiscal policy. In this regard, the current research tries to provide new evidence in this field by examining the relationship between fiscal policy and macroeconomic uncertainties in Iran. The results of the time-frequency analysis using continuous wavelet transformation showed that the adoption of fiscal policy had significant side effects in the period of 1990-2020. So that the use of spending tools in the common horizon of business cycles leads to the risk of increasing the uncertainty of economic growth and the uncertainty of inflation. In the medium run, the tax tool also creates similar effects on the economy. This tool can reduce uncertainty only in the short-term and during the boom if it is applied counter-cyclically. In addition, there is a history of tax revenue and expenditure following macroeconomic uncertainties in the short and medium term. Therefore, adopting a countercyclical fiscal policy regardless of the success in stabilization, due to the possibility of creating macroeconomic uncertainties, leads to the opposite effects regarding stabilization.

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References

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Macroeconomics Research Letter
Volume 17, Issue 35
October 2022
Pages 73-104

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History

  • Receive Date: 17 September 2023
  • Revise Date: 08 October 2023
  • Accept Date: 17 October 2023

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