Effects of Fiscal Policy Shocks on Iranian Economic Growth From 1959-2009

The new Keynesian perspective recognizes the role of governments on economic growth, through the choice of monetary and fiscal policy. The magnitude of this role is related with the structure of the economy and the structured set of economic institutions. Thus, one could expect that empirical studies on measuring the consequences of changes in fiscal policies yield different results in different times and places. This study examines the asymmetric effects of fiscal policy shocks, along with growth in money supply, on Iranian economic growth during the period 1959-2009. We employed the Hodrick-Prescott filter as a tool to extract government's positive and negative fiscal policy shocks, and carried out this using the specified Shang Chen 2007 model. Results suggest that the government's positive and negative fiscal policy shocks are fully asymmetric only in the case of construction budget. This asymmetry shows negative (contractionary) policy shocks having decreasing and larger effects on Iranian economic growth than positive (expansionary) shocks.