The effects of government military spending on Iran's business cycles: A dynamic stochastic general equilibrium

Document Type : Original Article

Authors

1 Ph.D. Candidate, Department of Economics, Abarkouh Branch, Islamic Azad University, Abarkouh, Iran.

2 Associate Professor, Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran.

3 Assistant Professor Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran.

Abstract

Military spending has an impact on government and public sector budgets and can also affect the business and economic cycles of countries. Therefore, according to the importance of the subject, present study investigated effects of the government's military expenditures on Iran's business cycles in the framework of a dynamic stochastic general equilibrium (DSGE) model in the 1978 to 2023 in the form of three scenarios. In first scenario, government expenditures were not separated and a standard model was estimated. In the second, government expenditures were separated into military and civilian, and in the third, a war shock was included in the model. Based on the results, the second model had a higher explanatory power for Iran's economy. According to the instantaneous response functions, the shock to government military expenditures has a negative effect on investment and wages and a positive effect on output, consumption, government expenditures, and employment. It was suggested to increase the deterrence by maintaining the current levels of the government's military expenditures, because the effects of increasing the military budget on economic variables are less than the shock of war. When there is a war, the ratio of military expenses to total government expenses will increase.

Keywords

Main Subjects

References

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History

  • Receive Date: 16 April 2024
  • Revise Date: 12 June 2024
  • Accept Date: 13 June 2024
  • Publish Date: 21 May 2024

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