Document Type : Original Article

Authors

• Mehdi Mohammadi dereshki ¹
• Tahereh Akhoondzadeh Yousefi ²
• mahdi rostamzadeh ²
• mohammad sokhanvar ²

¹ PhD student, Department of Economics, Urmia Branch, Islamic Azad University, Urmia, Iran

² Assistant Professor, Department of Economics, Urmia Branch, Islamic Azad University, Urmia, Iran

Abstract

The idea that gained traction in economics with Keynesian theories (1936) pertains to the potential differential effects of fiscal policy on macroeconomic variables during periods of economic recession and boom. This concept has garnered significant attention from economists in both theoretical and empirical aspects over the past few years. Policymakers and statesmen in advanced economies and emerging markets tend to increase public spending or reduce taxes when confronted with economic recessions. Questions arise concerning the sign, magnitude, and channels through which these decisions impact GDP, There is no theoretical consensus on this mattertax reductions and increased public spending boost aggregate demand, leading to higher demand for labor, resulting in increased wages and employment. Higher income stimulates consumption, which further increases aggregate demand, leading to higher levels of investment and employment, thus creating a multiplier effect on income, consumption, and overall economic activity.

the substitution effect implies that an increase in government spending is partially offset by a reduction in consumption and investment. These analyses, based on the assumptions of forward-looking consumers and firms maximizing intertemporal utility in neoclassical models, suggest a lower fiscal policy multiplier. According to Ricardian analysis within this framework, the fiscal policy multiplier could even be zero.

Keywords

• Monetary policy index
• multiplier
• consumption and sales tax
• import tax
• tvp-favar model

Main Subjects

• Financial Economics