Authors
PhD candidate of economics, Urmia University
Abstract
This paper investigates the effects of fiscal policy shocks and fiscal multipliers of the Iranian economy in the framework of New-Keynesian Dynamic Stochastic General Equilibrium model (DSGE) by applying Bayesian approach. The results indicate that consumption tax shock lead to short-run decrease in output. Moreover, government spending shock leads to short-run increase in output and long-run increase in inflation. This result makes sense as government expenditures are financed by an increase in the monetary base.The results of structural fiscal multipliers indicate that short-run government expenditure multiplier with 1.29 percent has a direct relationship and sales and payroll tax multiplier with 0.22 percent has an indirect relationship with output. Therefore financing government spending with sales and payroll tax can be considered as an effective fiscal policy to increase output.
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