The effect of fiscal policy in terms of government spending on private consumption in recessions and booms in Iran

Abstract

This paper presents an empirical study on measuring the effects of fiscal policy in terms of government spending on private consumption in both recession and booms over the period of 1965-2010. The proposed study uses Hodric-Prescott filter to find the cycle of recessions and booms. Then, we use autoregressive distributed lag model to estimate the changes. The results of this survey indicate that, in long term, an increase on government expenditures normally impacts private sector positively in both recessions and booms. The impact in short terms is positive during the recessions but during the booming session, there is no meaningful relationship between government spending and private spending.

Keywords

• Government spending
• Fiscal policy
• Recession and boom