The Effect of Budget Structure on Private Credit in Iran (Lazy Banks View)

One of the main sources of private finance is private credit given through domestic banking system. Based on economic literature, government budget structure could have dual effect on bank's lending performance. The Aim of This Study is investigating the effect of budget structure through government expenditure and government borrowing from banking system on private credit in IRAN. For this purpose 1971-2009 time series data and Johansen-juselious co-integration approach has been used.
Empirical results show that both government expenditure and government borrowing lead to negative effects on private credit. These results are more consistent with the "lazy bank" view in IRAN. ECM results also show that budget financing through domestic banking system comparing with government expenditure, cause quickly crowding out of credit from private sector.