The Effect of Fiscal Shocks on Output and the Level of Price in Iran: A SVAR Approach

The aim of this article is the study of the effects of fiscal shocks on GDP and thelevel of price in Iran, using a quarterly dataset of variables during 1988:1-2010:4.This analysis will take place by using a Structural Vector Auto regression Approach.The results of impulse response functions show different components of government expenditure and tax revenues as having different impacts on economic variables in the short term and long term. A positive shock in total government expenditure and government current expenditure is found to have positive temporary effect on output and also increases the level of prices in the short-term, while the government investment expenditure has more stable positive effect on GDP and no significant effect on prices. Total tax revenue expansionary shocks do not affect the GDP but impose a negative effect on the level of prices in the short-term. Investigation of tax revenue components shows that direct tax shocks contribute to the decline in output and the level of price in the short-term and Indirect taxes has no significant effect on these variables.