The Policy of Increasing Public Investment in Iran: A DSGE Approach

The use of natural resource revenues for achievement of development has been challenging issue for resource abound countries. These a challenging stem from the fact that incomes from natural resources are non-durable, unpredictable and uncertain. Many countries have pursued approaches and tools for managing these revenues to prevent economic fluctuations. The international organizations and economic experts propose a diversification into resource revenues in the form of different approaches for public investment. The present study evaluates the policy of increasing public investment in Iran in the form of three gradual, aggressive and conservative approaches for the period of 1978-2015 using a dynamic stochastic general equilibrium method. The results showed that after an oil revenue shock, the status of economic variables in the gradual increase approach is better than the other two approaches. In a gradual approach, in addition to increasing GDP and private and public consumption, public debt is also declining.