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The Effect of Discretionary Fiscal Policy on Consumption and Private Investment in Iran: Investigation of Crowding out And Crowding in Effects

Document Type : Original Article

Authors

1 . Assistant Professor, Department of Economics, Academic Center for Education, Culture and Research, Tehran, Iran,.

2 Associate Professor, Department of Economics, Faculty of Social Sciences and Economics, Al-Zahra University, Tehran, Iran.

Abstract

Discretionary fiscal policy refers to discretionary changes in taxation, spending, or other financial activities by the government in response to economic events or changes in economic conditions. The adoption of this policy, if it is not in line with the stability of fluctuations, can leave negative effects on economic variables.The purpose of this research is to investigate the effects of discretionary fisical policy on private consumption and investment in Iran. For this purpose, first, the fiscal response function in Iran during the period 1357-1401 was estimated according to the model of Fataz and Miho (2003 and 2006) using the 2SLS-IV approach, and then through this function, discretionary financial policies are extracted and analyzed. According to the fiscal policy rule, the fisical policy in Iran has been pro-cyclical behavior the period under review. Also, by extracting the discretionary fiscal policy from the fiscal policy rule and examining its effects using the GMM approach, the existence of the Crowding-Out effect in consumption and investment has been confirmed, the adoption of discretionary fiscal policy in Iran has driven the private sector from investing in this sector and also reduced household consumption, and therefore can have a destructive effect on economic growth.

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References
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Economic Policies and Research
Volume 3, Issue 2 - Serial Number 10
August 2024
Pages 112-147
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