A study of the nonlinear effects of fiscal policies on economic activities during business cycles through the Smooth Transition Auto Regressive (ESTAR) approach

Document Type : Research Paper

Authors

1 PhD graduate in economics, Islamic Azad University, Science and Research Branch, Tehran, Iran

2 - Assistant Professor of Economics, Islamic Azad University, Science and Research Branch, Tehran, Iran

3 Professor of Economics, Islamic Azad University, Science and Research Branch, Tehran, Iran

4 Associate Professor of Economics, Islamic Azad University, Science and Research Branch, Tehran, Iran

Abstract

Nowadays, the role of government interference in the economy is accepted in various economic theories. Governments can adopt monetary and financial policies to influence economic fluctuation and growth.. The extent of this role depends on the structure of the economy and the economic institutions of the society. In many macroeconomic texts and business cycles, fiscal policy has been introduced as part of the process of economic stabilization. The automatic changes in government revenues and expenditures help to respond to production fluctuations to pave the way through the multiplying factor of traditional demand. In this regard, this research seeks to investigate the effect of government financial policies on economic activities in the Iranian economy through different phases of a business cycle using nonlinear patterns in the period of 1988-2016. Also, financial policies and production, the relationship between the two in different economic situations, and the business cycle of recession and prosperity are analyzed. In this regard, using the threshold regression model, the effect of financial policies is studied using the introduced variables, the corresponding tests were performed, and the ESTAR model is selected. Based on this model, the asymmetry of the impact of financial policies on expenditure and taxes is accepted. The findings of this study have important implications for combining optimal financial policies throughout the various stages of a business cycle.

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Main Subjects

References

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The Journal of Economic Policy
Volume 12, Issue 23
October 2020
Pages 345-374

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