Payame Noor University Economic Growth and Development Research 2228-5954 9 33 2018 12 22 Studying Threshold Effects of Government Investment and Public Debt in an Economic Growth Model for Iran Provinces; Using a Panel Smooth Transition Regression Model (PSTR) Studying Threshold Effects of Government Investment and Public Debt in an Economic Growth Model for Iran Provinces; Using a Panel Smooth Transition Regression Model (PSTR) 41 56 5066 10.30473/egdr.2018.5066 FA Ali Falahati Assistant Professor of Economics, Razi University, Kermanshah, Iran Maryam Heidarian Ph.D. Student of Public Economics, Razi University, Kermanshah, Iran Journal Article 2018 04 17 In an economy system, government activities play a fundamental role in economic growth and development of countries, but increase these activities have a positive effect on economic growth until a certain threshold and from this threshold excessive increase in government activities not only have no positive effect on economic growth, but these activities are main barrier to growth. <br />Including of these activities, can mention the government''s capital expenditures and public debt. In this study, is tried to study the threshold effects and non-linear government investment and public debt on GDP in two separate models during of 2000-2016 using of provincial data and Panel Smooth Transition Regression Model (PSTR). <br />The results of linearity test show that there is a nonlinear relationship between variables. Also, the inclusion of a transfer function with a threshold parameter which is representing a two-regime model, is sufficient to determine the nonlinear relationship between variables. The results show that public debt and investment in first regime have a positive effect on GDP, but by crossing of threshold and entering to second regime, severity of this effect will be increased and negative. It seems, this result is due to the crowed-out effect on private sector and increase in public debt due to rising government spending and confirms Laffer curve hypothesis. In an economy system, government activities play a fundamental role in economic growth and development of countries, but increase these activities have a positive effect on economic growth until a certain threshold and from this threshold excessive increase in government activities not only have no positive effect on economic growth, but these activities are main barrier to growth. <br />Including of these activities, can mention the government''s capital expenditures and public debt. In this study, is tried to study the threshold effects and non-linear government investment and public debt on GDP in two separate models during of 2000-2016 using of provincial data and Panel Smooth Transition Regression Model (PSTR). <br />The results of linearity test show that there is a nonlinear relationship between variables. Also, the inclusion of a transfer function with a threshold parameter which is representing a two-regime model, is sufficient to determine the nonlinear relationship between variables. The results show that public debt and investment in first regime have a positive effect on GDP, but by crossing of threshold and entering to second regime, severity of this effect will be increased and negative. It seems, this result is due to the crowed-out effect on private sector and increase in public debt due to rising government spending and confirms Laffer curve hypothesis. https://egdr.journals.pnu.ac.ir/article_5066_4b31a750d93df74b3f9a3726eac0186a.pdf