The Investigation of Cyclical Nature of Government Expenditures in Iran (Markov-Switching Non-linear Approach)

The main objective of this paper is to investigate the positive and negative shocks of government expenditures on economic growth in Iran during the period of 1990:1-2015:4. For achieving this purpose, at first the government expenditures shocks has been extracted by applying Baxter-King filter and then, the effects of gross capital formation, consumer price index and oil income have been tested on economic growth by Markov-Switching non-linear approach. The empirical results of this research reveal that there is a non-linear relationship between government expenditures and positive shocks of government expenditures has negative and positive effects on economic growth in the periods of recession and boom respectively. Moreover, the cyclical nature of government expenditures has been confirmed in Iranian economy over the period of study.