Investigating the effects of government debt on the poverty in Iran; with smooth transition regression (STR) approach

Document Type : Original Article

Authors

1 Researcher of Economic Affairs Research Institute, Ministry of Economic Affairs and Finance.

2 Member of the academic staff of the Research Institute of Economic Affairs, Ministry of Economic Affairs and Finance.

Abstract

in the present study, an attempt will be made to investigate this effect in the form of non-linear soft transfer regression methods during the period of 1991 to 2022 for Iran's economy. The results of the estimations showed that the primary effects of government debts on the poverty index were negative and significant, but the secondary effects were positive and significant, so the overall result showed that the increase in government debts led to an increase of 2.801 percentage will be in poverty. This issue is due to the fact that the government, by increasing its debts, makes spending policies difficult in terms of size and composition, then due to compensating these expenses, it also involves tax policies, which in the long run can make regulatory policies ineffective and lead to financial pressure on the middle class and the poor. Inflation rate and population growth in both regimes had positive and significant effects on poverty. Also, the effects of governance variables, human development and GDP growth in the first regime were positive on poverty, but in the second regime, these effects were negative and reduced poverty.

Keywords

Main Subjects

References

  1. Abdulqodir Babatunde, T., Rasaki Oluwafemi, K., Quadri Tunde, A., & Lukman Olawale, A. (2023). Effect of public debt on poverty and economic growth of Nigeria (1981-2019). International Journal of Research and Innovation in Social Science (IJRISS), 7(10). https://doi.org/10.47772/IJRISS
  2. Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), 1369–1401.
  3. Ahmadi, M. (2017). Government debt and economic growth in Iran: Soft transfer regression (STR) approach. Macroeconomic Research Journal, 13(25), 133-152.
  4. Ajisafe, R. A. (2016). Corruption and poverty in Nigeria: Evidence from ARDL bound test and error correction model. Journal of Emerging Trends in Economics and Management Sciences, 7(3), 156–163.
  5. Alagba, A. E., & Eferakeya, M. A. (2019). Effect of public debt on economic growth in Nigeria: An empirical analysis. International Journal of Business and Economic Development, 7(2).
  6. Alesina, A., & Rodrik, D. (1994). Distributive politics and economic growth. The Quarterly Journal of Economics, 109(2), 465-490.
  7. Alkire, S., & Foster, J. (2011). Counting and multidimensional poverty measurement. Journal of Public Economics, 95(7-8), 476-487.
  8. Ashraf, M. W., Akhtar, M. J., Hafeez-ul-Rehman, P., & Awan, A. G. (2020). Impact of external debt on poverty in Pakistan. Global Journal of Management and Social Sciences and Humanities, 6, 251-271.
  9. Azamat, O., Fayzullokh, S., & Nilufar, A. (2023). The impact of entrepreneurship on poverty reduction. International Journal of Professional Business Review, 8(3), e01012.
  10. Blank, R. M., & Blinder, A. S. (1985). Macroeconomics, income distribution, and poverty.
  11. Bloom, D. E., & Canning, D. (2004). Global demographic change: Dimensions and economic significance.
  12. Chitimira, H., & Ncube, M. (2023). The prospects and challenges for mobile money regulation and the promotion of financial inclusion in Zimbabwe. In Financial Inclusion and Digital Transformation Regulatory Practices in Selected SADC Countries: South Africa, Namibia, Botswana and Zimbabwe (pp. 125-140).
  13. Chong, A., & Calderon, C. (2000). Institutional quality and poverty rates in a model of endogenous growth. Journal of Economic Growth, 5(3), 279–303.
  14. Cohen, D. (1993). Growth and external debt. CEPR Discussion Papers (No. 778).
  15. Dabla-Norris, M. E., Kochhar, M. K., Suphaphiphat, M. N., Ricka, M. F., & Tsounta, M. E. (2015). Causes and consequences of income inequality: A global perspective. International Monetary Fund.
  16. Dasgupta, P. (1993). An inquiry into well-being and destitution. Clarendon Press.
  17. Dollar, D., & Kraay, A. (2002). Growth is good for the poor. Journal of Economic Growth, 7, 195-225.
  18. Easterly, W. (2001). The elusive quest for growth: Economists' adventures and misadventures in the tropics. MIT Press.
  19. Easterly, W., & Fischer, S. (2001). Inflation and the poor. Journal of Money, Credit and Banking, 160-178.
  20. Ebunoluwa, O. O., & Yusuf, W. A. (2018). Effects of economic growth on poverty reduction in Nigeria. IOSR Journal of Economics and Finance, 9(5), 25-29.
  21. Falkenheim, M. (2022). The welfare effects of debt: Crowding out and risk shifting. Congressional Budget Office Working Paper Series.
  22. Fayzullokh, S., Barnogul, S., Dinara, A., & Sardor, K. (2023). Analyzing the relationship between public debt and poverty reduction in developing countries: An empirical study. RGSA – Revista de Gestão Social e Ambiental, 17(2). https://doi.org/10.24857/rgsa.v17i2
  23. Gylfason, T., & Zoega, G. (2006). Natural resources and economic growth: The role of investment. World Economy, 29(8), 1091-1115.
  24. Hall, R. E., & Jones, C. I. (1999). Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics, 114(1), 83–116.
  25. Heller, M. P. S. (2005). Understanding fiscal space. International Monetary Fund.
  26. Hepp, R. H. (2005). Effects of debt relief on foreign aid, growth, and health expenditures. University of California, Santa Cruz.
  27. Herndon, T., Ash, M., & Pollin, R. (2014). Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge Journal of Economics, 38(2), 257-279.
  28. Jafari, M., & Shaygan Mehr, S. (2022). Income inequality and the curse of oil: A study of countries rich in oil energy. Quarterly Journal of Energy Economics Studies, 17(71), 6-12.
  29. Jalali Nayini, S. A., & Ghafari, M. (2017). The role of institutions in inequality. Planning and Budgeting Quarterly, 20(3).
  30. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2009). Governance matters VIII: Aggregate and individual governance indicators, 1996–2008. World Bank Policy Research Working Paper No. 4978.
  31. Khanzadi, A., Heydari, S., Vafamand, A., & Derakhshan, M. H. (2017). Investigation and analysis of the effect of inflation on the relationship between financial development and employment in Iran's economy: The application of the Logistic STR (LSTR) model. Sustainable Development and Development Research Quarterly, 18(2), 1-20.
  32. Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of Development Economics, 29(3), 253-268.
  33. Mohammadi, M. H. (2022). Dynamic modeling of poverty trap and debt accumulation in Iran (using system dynamics method) (Master's thesis, Shahrood University of Technology).
  34. Naeem, A., & Hamid, A. (2016). Public debt, income inequality, and macroeconomic policies: Evidence from South Asian countries. Pakistan Journal of Social Sciences, 36(1), 99-108.
  35. Nejati, M., Shakibaei, A., & Gholami, M. (2023). The relationship between population structure and poverty. Social Welfare Quarterly, 22(87).
  36. North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge University Press.
  37. Papyrakis, E., & Gerlagh, R. (2004). The resource curse hypothesis and its transmission channels. Journal of Comparative Economics, 32(1), 181-193.
  38. Pattillo, C. A., Poirson, H., & Ricci, L. A. (2002). External debt and growth.
  39. Rahimi, R., Daman Kasha, M., & Afrasiabi, M. (2022). Investigating the effect of inflation on poverty using the econometric model and the views of the Holy Quran. Economics and Business Journal, 11(22), 5-41.
  40. Ravallion, M. (2001). Growth, inequality and poverty: Looking beyond averages. World Development, 29(11), 1803-1815.
  41. Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 573-578.
  42. Roine, J., Vlachos, J., & Waldenström, D. (2009). The long-run determinants of inequality: What can we learn from top income data? Journal of Public Economics, 93(7-8), 974-988.
  43. Romer, C. D., & Romer, D. H. (1998). Monetary policy and the well-being of the poor.
  44. Ross, M. (2003). How does mineral wealth affect the poor? UCLA Department of Political Science.
  45. Sachs, J. D., & Warner, A. M. (2001). The curse of natural resources. European Economic Review, 45(4-6), 827-838.
  46. Sadeghi Amroabadi, B., & Houshmandi, H. (2022). Analysis of the effects of income inequality on the public debt of the government in OPEC member countries, the threshold approach of the panel. Economic Research and Policy Quarterly, 97(29), 335-313.
  47. Sadeghi, M. B., Daman Kasheh, M., Yunsi, A., Nasabian, S., & Kiqbadi, A. R. (2024). The effect of government debt on the growth and welfare of the society under the golden rule of financial development, applying the threshold regime change models of Star. Management Accounting Science, 61(75), 149-167.
  48. Suryadarma, D., Suryahadi, A., & Sumarto, S. (2013). Sectoral growth and job creation: Evidence from Indonesia. Journal of International Development, 25(4), 549-561.
  49. Tamai, T., & Kamiguchi, A. (2019). Deficit-financed public investment, economic growth, and welfare in an overlapping generations model. Economic Research Center Discussion Paper, No. E19-1.
  50. Ueshina, M. (2017). The effect of public debt on growth and welfare under the golden rule of public finance. Journal of Macroeconomics. https://doi.org/10.1016/j.jmacro.2017.08.004
  51. United Nations. (2015). Transforming our world: The 2030 agenda for sustainable development.
  52. World Bank. (2014). Global monitoring report 2014/2015: Ending poverty and sharing prosperity. The World Bank.
  53. World Bank. (2022). Four decades of poverty reduction in China: Drivers, insights for the world, and the way ahead.
  54. Zhao, W., Liang, Y., & Li, P. (2023). Can enterprises' participation in targeted poverty alleviation reduce the cost of debt financing? Evidence from China. Finance Research Letters, 58(PC).

Files

History

  • Receive Date: 19 June 2024
  • Revise Date: 23 July 2024
  • Accept Date: 23 July 2024
  • Publish Date: 21 May 2024

Share

How to cite

Statistics