An Investigation of The Non-Linear Effects of Fiscal Policy on Private Consumption in IRAN in A MarkovSwitching Model With Time Varying Transition Probabilities

If with expansionary (contractionary) fiscal policy، private consumption increases (decreases)، fiscal policy has Keynesian nature; else، it has non- Keynesian nature. If in certain period، sometimes fiscal policy has Keynesian effects and sometimes it has non- Keynesian effects، it will have non-linear effects. Since، there is not a paper about non- linear fiscal policy in IRAN، the purpose of this paper، is to test the non-linear effects of fiscal policy on private consumption in IRAN، during 1993:2-2010:4. So we use a Markov-switching model with FTP and TVTP approach. The results of the estimation of the Markov switching model with FTP present the existence of significant non-linarites in the effects of fiscal policy in IRAN. Also the Keynesian regime is an absorbing regime such that the probability of remaining in the non- Keynesian regime is just، 1%. Furthermore، Estimation results for the TVTP model show that we cannot find any strong evidence about the sources of these non-linarites.