Fiscal Policy of Iran's Economy in a DSGE Model (Focusing on Non- Ricardian Households)

This paper designs a medium scale dynamic stochastic general equilibrium (DSGE) model for Iran`s economic. According to the model, it is distinguished that taxation rule combination has a significant role in fiscal policy effectiveness. In order to show the combinations, several distortionary taxes are used, which are the rate of labor income taxation, the rate of capital taxation and the rate of consumption taxation. A government expenditure shock affects both Ricardian and Non- Ricardian consumption. The results of simulation reveal that the shock reduces the consumption of Ricardian households for a short time then, it rises to higher than the stable one. Non- Ricardian households reduce their consumption for several periods and when income increases, they start to increase consumption, too.