The Effects of Fiscal Consolidation Policy on Important Macroeconomic Variables of Iran with Emphasis on Production Growth: FAVAR Approach

Karimi Potanlar, Saeed; Jafari Samimi, Ahmad; Hamid La&#039;l-e-Khezri, Hamid

doi:10.30473/egdr.2018.4391

Document Type : ORIGINAL ARTICLE

Authors

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

² Professor of Economics, Faculty of Economics, University of Mazandaran, Mazandaran, Iran

³ PHD studentPh.D. Student of Economics, Faculty of Economics, University of Mazandaran, Mazandaran, Iran

https://doi.org/10.30473/egdr.2018.4391

Abstract

The aim of this article is to analyzing the effect of shocks of fiscal consolidation policy on the macroeconomic variables of Iran. In this regard by using Factor Augmented Vector Auto Regression (FAVAR) method the effect of shocks on government revenues and expenditures on important macroeconomic variables including total real GDP growth, inflation, private consumption growth and investment growth over the period 1984:1 -2015:4 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 a same policy tool to effect all variables. Thus with emphasis on real GDP growth which is a major factor that affects other macroeconomic variables, it can be noted that in short term which consists of 4 seasons, reducing public expenditures and increasing government revenues lead to a reduction in production in response to a negative reaction to investment and private consumption and inflation will decrease. Therefore in the short term the suitable policy for fiscal consolidation is a combination of expenditure cut and income rising and in particular, the policy of reducing current expenditure and increasing import taxes. In the medium and long term, respectively consist of 8 and 16 seasons, real GDP growth responses positively to the expenditures cut policy, decline in current expenditures and social public expenditures is introduced as an instrument of fiscal consolidation policy.

Keywords

20.1001.1.22285954.1397.9.33.1.5

Main Subjects

Economic Growth

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Economic Growth and Development Research

The Effects of Fiscal Consolidation Policy on Important Macroeconomic Variables of Iran with Emphasis on Production Growth: FAVAR Approach

References

References

Volume 9, Issue 33
January 2019
Pages 15-40

The Effects of Fiscal Consolidation Policy on Important Macroeconomic Variables of Iran with Emphasis on Production Growth: FAVAR Approach

References

References

Volume 9, Issue 33January 2019Pages 15-40

Volume 9, Issue 33
January 2019
Pages 15-40