The Determinants of Government Debt Size in Iran's Economy: New Evidence from an ARDL Approach

Identifying the determinants of government debt size - due to its impact on other macroeconomic variables - has particular importance in any economy that Iranian economy cannot excluded from this principle. Accordingly, this study investigates the determinants of government debt size using an Autoregressive Distributed Lag (ARDL) model in Iran during 1973-2017. The results show that budget deficit size and economic growth has a significant and tangible effect on the size of government debt, so that this effect was positive for budget deficit size and negative for economic growth. In addition, the findings show that variables of inflation, oil price fluctuations, bank interest rate and political instability indicators (number of changes of ministers in one year and number of legislative elections held in one year) had not a significant effect on government debt size. Therefore, it is conceivable that government debt is rooted in deficits that emerged from structural imperfection and institutional rigidity in Iran.