Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear Functions
Governments pursue macroeconomic objectives such as stabilizing the economy by employing fiscal policy tools. However, fiscal sustainability is obligatory for achieving economic stability. This research, utilizing linear and nonlinear fiscal reaction functions, including quadratic and cubic, time-va...
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University of Sistan and Baluchestan
2025-03-01
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| Series: | اقتصاد باثبات |
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| Online Access: | https://sedj.usb.ac.ir/article_9015_615aafd560e3160c3f87eed3fecd6d46.pdf |
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| author | Hossein Aghilifar Khosrow Piraei hashem zare Mehrzad Ebrahimi |
| author_facet | Hossein Aghilifar Khosrow Piraei hashem zare Mehrzad Ebrahimi |
| author_sort | Hossein Aghilifar |
| collection | DOAJ |
| description | Governments pursue macroeconomic objectives such as stabilizing the economy by employing fiscal policy tools. However, fiscal sustainability is obligatory for achieving economic stability. This research, utilizing linear and nonlinear fiscal reaction functions, including quadratic and cubic, time-varying parameter and Markov-switching fiscal regime change functions, measures the fiscal sustainability of the Iranian government and its determinants in the period 1970-2021. Based on the findings of this research, the government debt-to-GDP ratio in linear and nonlinear models is negative and insignificant, but in the model with control variables, it is negative and strongly significant. Hence, the model with control variables results in the unsustainability of Iran's fiscal policy. The results of Markov-switching fiscal regime change model reveals the existence of two fiscal regimes in Iran's fiscal policy. An unsustainable fiscal regime, in which the reaction of the primary budget balance to the public debt is negative and significant, and a sustainable fiscal regime in which the reaction of the primary budget balance to the public debt is positive but insignificant. Also, the results of the Markov-switching fiscal regime change model demonstrates that the average filtered and smoothed transmission probabilities of remaining in unsustainable fiscal regime is higher than that of sustainable fiscal regime, which indicates that Iran's fiscal policy has been unsustainable. Based on the results of the time-varying parameter model, the reaction of the primary budget balance to the debt expansion has been negative and diminishing, therefore, debt reduction has not been the priority of governments in Iran, and as a result, Iran's fiscal policy has been proceeding in the unsustainable direction. |
| format | Article |
| id | doaj-art-98fdad7e94454ffc93c0e5ed5734bc96 |
| institution | DOAJ |
| issn | 2821-1049 |
| language | fas |
| publishDate | 2025-03-01 |
| publisher | University of Sistan and Baluchestan |
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| series | اقتصاد باثبات |
| spelling | doaj-art-98fdad7e94454ffc93c0e5ed5734bc962025-08-20T02:55:30ZfasUniversity of Sistan and Baluchestanاقتصاد باثبات2821-10492025-03-016153310.22111/sedj.2025.47841.14419015Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear FunctionsHossein Aghilifar0Khosrow Piraei1hashem zare2Mehrzad Ebrahimi3PhD Student, Department of Economics, Faculty of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran.Corresponding Author, Associate Professor of Economics, Department of Economics, Faculty of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran.Assistant Professor of Economics, Department of Economics, Shiraz Branch, Islamic Azad University, Shiraz, IranAssistant Professor of Economics, Department of Economics, Faculty of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran.Governments pursue macroeconomic objectives such as stabilizing the economy by employing fiscal policy tools. However, fiscal sustainability is obligatory for achieving economic stability. This research, utilizing linear and nonlinear fiscal reaction functions, including quadratic and cubic, time-varying parameter and Markov-switching fiscal regime change functions, measures the fiscal sustainability of the Iranian government and its determinants in the period 1970-2021. Based on the findings of this research, the government debt-to-GDP ratio in linear and nonlinear models is negative and insignificant, but in the model with control variables, it is negative and strongly significant. Hence, the model with control variables results in the unsustainability of Iran's fiscal policy. The results of Markov-switching fiscal regime change model reveals the existence of two fiscal regimes in Iran's fiscal policy. An unsustainable fiscal regime, in which the reaction of the primary budget balance to the public debt is negative and significant, and a sustainable fiscal regime in which the reaction of the primary budget balance to the public debt is positive but insignificant. Also, the results of the Markov-switching fiscal regime change model demonstrates that the average filtered and smoothed transmission probabilities of remaining in unsustainable fiscal regime is higher than that of sustainable fiscal regime, which indicates that Iran's fiscal policy has been unsustainable. Based on the results of the time-varying parameter model, the reaction of the primary budget balance to the debt expansion has been negative and diminishing, therefore, debt reduction has not been the priority of governments in Iran, and as a result, Iran's fiscal policy has been proceeding in the unsustainable direction.https://sedj.usb.ac.ir/article_9015_615aafd560e3160c3f87eed3fecd6d46.pdfmarkov-switching modeltime-varying parameter modelfiscal sustainabilityfiscal regimefiscal policy |
| spellingShingle | Hossein Aghilifar Khosrow Piraei hashem zare Mehrzad Ebrahimi Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear Functions اقتصاد باثبات markov-switching model time-varying parameter model fiscal sustainability fiscal regime fiscal policy |
| title | Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear Functions |
| title_full | Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear Functions |
| title_fullStr | Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear Functions |
| title_full_unstemmed | Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear Functions |
| title_short | Estimation of Fiscal Reaction Functions and Determinants of Fiscal Sustainability in Iran Employing Linear and Nonlinear Functions |
| title_sort | estimation of fiscal reaction functions and determinants of fiscal sustainability in iran employing linear and nonlinear functions |
| topic | markov-switching model time-varying parameter model fiscal sustainability fiscal regime fiscal policy |
| url | https://sedj.usb.ac.ir/article_9015_615aafd560e3160c3f87eed3fecd6d46.pdf |
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