Government Size and Economic Growth in Iran: A Threshold Regression Approach

Abstract

A great deal of literature has examined the relationship between government size and economic growth. To investigate this relationship, this study applies a threshold regression model to test whether the Army curve exists in Iran as an oil exporting country. Five classification of government size include total government expenditure/GDP, government investment expenditure/GDP and government consumption expenditure/GDP, government expenditure financed by oil /GDP and government expenditure financed by tax/GDP. The result reveal that all classification except government expenditure finance by tax have a threshold effect and economic growth is maximum when government expenditure is between 23 to 30 percent of GDP.

Keywords

• government size
• economic growth
• armey curve