The effect of fiscal policy on social welfare due to government spending shocks, monetary and productivity

The most important issue for policymakers in optimal policy-making is to choose the tools that bring the equilibrium output to the desired level, with the least volatile income fluctuation. The main purpose of this paper is to investigate the effects of favorable fiscal policies on social welfare and business cycle management for the Iranian economy with respect to government spending shocks, monetary shocks and productivity shocks. Therefore, using the Vector Autoregressive Model (SVAR) and Hudrick-Prescott, we investigate the role of government, monetary and financial spending shocks on production and consumption representing business cycles and social welfare in the time period of 1971-2018. The results indicate that the highest growth in as an indicator consumption and welfare is due to the growth of productivity shocks, and then monetary shocks to some extent, but government spending shocks have a diminishing impact on consumption and welfare, which represents the phenomenon of crowding.