This study aims to investigate the effects of government expenditures on private investment in Iran over the period 1971 - 2005. The government expenditures are disaggregated into consumption and investment expenditures. The empirical studies of the issue are carried out via Johansen cointegration analyses.The evidence suggests that the government investment expenditures complement and stimulate private investment, while the government consumption expenditures have been crowding out private investment.

investment is one of the crucial issues in economics. In the literature, it is shown that increasing government (Public sector) investment will crowd out private investment. Given the long-term precedence of the public investment in Iran and its effects on economic variables, it is necessary to study this effect on demand for private sector investment while making macro-economic policies.Therefore, this paper attempts to evaluate the long-run equilibrium relationship between public and private investment for the "Iranian economy in the framework of the Auto-Regressive Distributed Lag (ARDL) Model. The result reveals a positive long-run equilibrium relationship between the public and private sector investment in Iran, that is, absence of crowding out effect.