Fiscal policy

The purpose of this article is to analyze the macroeconomic impacts of fiscal policy in Iran using a new-Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. The model takes into account distortionary taxations on wage, dividend, and consumption, while government expenditures are broken down into consumption of goods and services, and investment. The model is calibrated for Iran based on the estimated parameters by Bayesian method. To do so, a data set from 1981 to 2016 is used. The impulse response functions illustrate that an increase in consumption tax rate has a larger impact on the contraction of the economy than wage tax rate whereas the expansionary effects of government investment is much larger than government consumption expenditures.

This paper presents a framework for assessing the fiscal condition index (FCI) and develops a concept to assess fiscal condition of governments and implements it into Iran government as an oil exporting country. The concept consists of four dimensions -revenue, expenditure, budget balance, and debt structure-and each dimension has its own indicators. There are seven indicators examined namely expenditure to GDP ratio, non-oil revenue to total revenue ratio, public debt to GDP ratio, non-oil balance to non-oil GDP ratio, oil revenue to total revenue ratio, capital expenditure to total expenditure ratio , and overall budget balance to GDP ratio. Assessing cycle of fiscal indicators shows that these indicators have been pro-cyclical individually. Then, fiscal policy not only doesn’t have stabilizing role in macroeconomic conditions, but also increases the macroeconomic fluctuations. Likewise, the results indicate that Iran’s fiscal condition index is very volatile and pro-cyclical. Also, assessing this index demonstrate that Iran’s government has experienced fiscal health in 2003, 2006, and 2008. However, it has been in fiscal stress in 2012 and 2013. Iran’s governments did not have fiscal policy discipline in the period 1990-2011. This is because the oil price is the leading indicator of fiscal condition index. In addition, sanction is one of the reasons that caused decrease of FCI in 2010-2012. JEL Classifications: H70, H61, H63, H20

A greater size of government spending, may be less efficient. This is contradicting with Malaysian practice because the current Malaysian fiscal policy has allocated a huge budget from the lowest income of individuals to the highest international trade with the aims of reducing the economic implications caused by the outbreak of COVID-19. This paper embarks on three objectives. First, to provide an overview of fiscal policy. Second, to investigate the impacts of COVID-19; and third, reveals the actions taken by the Malaysian Government to implement the recovery policy. This paper adopts an integrative literature review and published reports relating to fiscal policy and COVID-19. The findings show the consolidated efforts of Malaysian Government towards the current fiscal policy in stabilizing the economic impact after the Movement Control Order. This paper could be a prudent guideline for other countries to strategize their fiscal policies in steering the macro and socioeconomic development.

Resource-rich developing countries are forced by economic fluctuations due to international commodity price movement. One way to reduce the volatility adverse effects is to establish institutions such as Sovereign Wealth Fund. However, the way this fund is managed is important. Iran, as a resource-rich developing country, suffers from economic fluctuations. In order to manage resource revenues, National Development Fund (NDF) has been established. In this paper, using DSGE model, we examined different scenarios for managing fund resources. A scenario, without any stabilizer Fund and two different scenario for National Development Fund. In the second scenario, NDF has a role like the one in Sixth Development Plan. In the third scenario, all oil revenues are deposited to NDF and a part of the fund as much as interest rate in the OECD countries plus 70% of long run oil revenues invested in the economy. The Results indicated that the management of oil revenues by the Fund, in which the inflow of oil revenues into the economy follows the commitment, is an appropriate policy to reduce the economic fluctuations in Iran.

The labor market is one of the main markets in the national economy and the equilibrium of the labor market is one of the main concerns of policymakers in every country. Theoretical foundations and empirical studies show that labor demand is the main factor in creating employment and equilibrium in the labor market. This article evaluates the effect of fiscal policy on labor demand in Iran from 1976-2018. During this period, the government has implemented employment-generating projects, tax and insurance exemptions via annual development programs and budgets, and encouraged investment in areas with high unemployment rates. we examined the effect of current government expenditures, government development expenditures, and taxes to study the effect of government fiscal policies on labor demand. In this article, we estimate the dynamic function of labor demand using the ARDL technique. According to the theoretical foundations and empirical studies in the specified function, labor demand is a function of intermittent values and independent variables of Gross Domestic Product (GDP), real wages, capital stock, current government expenditures, government development expenditures, tax revenues, and dummy variables of imposed war and the UN Security Council sanction. The results showed that fiscal policy has not had a positive effect on labor demand in the Iranian labor market in the short and long term.

This paper attempts to compare a Markov-Switching Dynamic Stochastic General Equilibrium (MS-DSGE) model by including deep habits consumption to a MS-DSGE model without deep habits. It is concluded that the deep habit adjusted model with regime switching is able to fit the Iranian data better. The results of estimating parameters indicate that deep habit formation, together with the persistence of habit stock, are significant parameters. The results also confirm that current and future consumption demand, expected marginal cost and stock of habits are effective driving forces in extracted New Keynesian Philips Curve considering deep habits. However, in contrast with Ravn et al (2006, 2010) findings, it is shown that presence of deep habit consumption in the model for Iranian economy, cannot lead to reduce inflation in response to monetary shock while the amount of increase in inflation in response to monetary shock in the model with deep habit is less than inflation increase in model without deep habits. Furthermore, in response to fiscal shock in the model considering deep habits, the negative effect of wealth could not be compensated in Iranian economy. Therefore, consumption begins to decrease in response to fiscal shock, although these reduction in the model without deep habits takes more longer than in the model with deep habits.

Financial sanctions have many economic consequences for the oil exporting economies. The sanctioned economy adopts economic policies to deal with it. This paper examines the relationship between financial sanctions, oil revenues and monetary and fiscal policies in Iran and explicates how financial sanctions have affected Iran's access to oil revenues. It also examines the role of fiscal and monetary policies in financial stability and resilience in Iran's economy. To this end, we employed a DSGE model with the new Keynesian approach. The results indicate that the interest rate, consumption, imports and inflation have a positive reaction to the oil revenue shock resulting from financial sanctions. However, the production, export, private sector investment and oil sales indicate a negative reaction to the oil revenues’ shock. Regarding the monetary policy shock, the reaction of production and consumption to the shock is positive. However, the reaction of oil sales and interest rate to this shock is negative. In terms of financial policy shock, production, consumption, investment and export indicated a positive reaction to this shock. However, the interest rate, imports and oil sales indicated a negative reaction to the fiscal policy shock. Monetary and fiscal policy shocks increase the effect of financial sanctions for a short period, while monetary policy shock has reduced the effect of financial sanctions for three periods. Therefore, monetary policy has been more effective than fiscal policy in reducing the effect of financial sanctions.