Testing the Effectiveness of Fiscal Policies on Economic Growth

Abstract

This study examines the effect of fiscal policies on economic growth in Iran, applying ARDL[1] and VDCF[2] methods, for the period of 1959-2003. The results showed that government’s constructive expenditures and taxes affect economic growth significantly,and their effects are positive and negative, respectively. This is the case that government’s consumption expenditures does not have a significant role in explaining the production’s changes. So it can be concluded that in Iran’s economy, it is better to lower the ratio of government’s consumption expenditures to its constructive expenditures, for the former causes more growth in price levels than production. [1]. Autoregressive Distributed Lags [2]. Variance Decomposition Function