THE EFFECTS OF FISCAL POLICY ON CONSUMPTION
AND EMPLOYMENT: THE CASE OF IRAN

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TAGHAVI MAHDI; REZAIE E.

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Paper Information

Journal: ECONOMIC RESEARCH REVIEW Year:2005 | Volume:4 | Issue:4 Page(s): 109-132

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Title

THE EFFECTS OF FISCAL POLICY ON CONSUMPTION AND EMPLOYMENT: THE CASE OF IRAN

Author(s)

TAGHAVI MAHDI | REZAIE E. | Issue Writer Certificate

Keywords

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Abstract

Investigating the effects of fiscal policy on macroeconomic variables is a valuable issue. Each of the macroeconomic schools predicts fiscal policy effects based on their special assumption, differently. In this paper, effects of government expenditures and taxes on consumption and employment has been investigated by using time series techniques [Vector Autoregressive Model], in addition we have used the time series data of the variables between 1350-1381. After estimating the Model, we have found that there is a long-run relationship between fiscal policy variables and employment and consumption. This relationship has been approved by using johansen cointegration test. Also dynamic effects of fiscal policies shock in short and medium-run has been found by using impulse response functions analysis and also short-run parameters have been estimated based on vector error correction model. The results show that because of positive shock of government expenditures, consumption and employment increase, but negative shock of taxes (tax increasing) cause consumption to decrease and employment does not show a significant reaction against this shock.

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