Investigating the Relation between Government Fiscal Policy and Social Welfare with Emphasis on Amartya Sen Index (Bound ARDL Testing Approach)

The main objective of this study was to investigate the short-term and long-term relationship between state fiscal policy (changes in capital and current expenditure) and social welfare. To this purpose, variables such as GDP, the Gini coefficient, the current and capital expenditures of government and social-welfare which have been achieved by converting the homogeneous Amartya Sen, are considered for the period 1971-2014.The result of Bound ARDL testing approach (has been extended by Pesaran and colleagues 2001), shows that although there is a direct relation between capital and current expenditure and social welfare in short-term, the social welfare has inverse relation with current expenditures and economic growth. The result also indicates a direct relation between social welfare and capital expenditure in long-term. These findings are consistent with the stylized facts of fiscal policy in Iran, including government capital expenditure budget failure to meet development goals and bring prosperity due to the fluctuations of the construction budget, delay in construction projects, incorrect selection of projects. Other results revealed that social welfare variable responses to short- term fluctuations in capital and current expenditure and economic growth and to distortion from long term equilibrium trends in the previous period of social welfare.