Evaluating of the Business Cycle Status in Iran and its Impact on the Effectiveness of Fiscal Stimulus Programs and Investment

Subject Areas : Journal of Investment Knowledge

Elham gholami ¹ (PhD student in Economics, Science and Research Branch, Islamic Azad University, Tehran)
Kambiz Hozhabr Kiani ² (Professor of Economics, Science and Research Branch, Islamic Azad University, Tehran (Corresponding Author))

Received: 2015-02-04 Accepted : 2014-06-17 Published : 2014-06-17

Keywords: Business Cycle, Threshold Autoregresive Model, Hodrick - Prescott Filter, Fiscal Stimulus Programs,

Abstract :

The main objective of this paper is to investigate the effects of the business cycle position on the effectiveness of fiscal stimulus Programs and investment in Iran. For this purpose, first business cycle is extracted by applying methods Hodrick – Prescott Filter and data years 1338 to 1391.Then, these years in terms of the business cycle position to two regimes include upper regime and lower regime, is separated and investigated the effects of fiscal stimulus programs shocks (increasing government spending and tax cuts) on economic growth. The investigation have been done by estimating a threshold VAR model including three variables: GDP, government spending and taxes, assuming disturbance terms' heteroskedasticity in two regimes and derivation of cumulative and impulse response functions. The results indicate that the effectiveness of the government's fiscal stimulus is dependent on the position of the business cycle. So, fiscal stimulus plan in the form of increaseing government and tax reductions are more efficient in lower and upper regime, respectively. Accordingly, increasing government spending  in recession conditions and tax cuts in  booming conditions is the best fiscal stimulus plan to stimulate economic growth.