Effects of Government Expenditure on Poverty Reduction in Rural Areas of Iran

This study attempts to investigate the effects of some government spending on poverty reduction in rural areas of Iran. Using time series data of 1971-2001, a system of equations including variables affecting poverty and productivity growth was considered. The system equations included poverty, total factor productivity, nonagricultural employment, road, irrigation, power, wage and terms of trade. Using the simultaneity and diagonolity tests, the results showed three stage least square method is more suitable in this study. Marginal effects of government spending on poverty were calculated. Based on the results, government spending on rural and community development, roads agricultural research and development and irrigation, have the large impact on poverty reduction, respectively.