The Role of Fiscal Policies in Shaping Iran's Economic Convergence under Commitment

Document Type : Original Article

Authors

1 Ph.D. Candidate in International Economics, Department of Economics, Islamic Azad University, Isfahan Branch (Khorasgan), Isfahan, Iran.

2 Associate Professor, Department of Economics, Faculty of Administrative Sciences and Economics, Isfahan University, Isfahan, Iran

3 Associate Professor, Department of Economics, Islamic Azad University, Isfahan Branch (Khorasgan), Isfahan, Iran

10.29252/ecoj.10.4.101

Abstract

The convergence process of each country requires the promotion of technology, the attraction of domestic and foreign capital, participation in foreign markets and the existence of economic and social infrastructures. On the other hand, the existence of sanctions (Commitment) imposed on the Iranian economy during recent years has given an important role to the government and the fiscal policies. In this paper, models of unconditional beta convergence, beta conditional convergence  and  sigma convergence during 1971-2018 are estimated by GMM method. The results detect the existence of unconditional and conditional beta convergence as well as sigma convergence in the Iranian economy. According to Beta conditional convergence estimates, the best-case scenario that speed up rapidity of economic convergence in commitment terms is the provision of government expendutures and tax revenues. The results of Sigma's convergence show that the sanctions that create commitment are like a random shock to the economy and instability and exit from equilibrium, given that the economy initially has conditional and unconditional beta convergence; by implementing optimal financial policies the effects of these shocks will be eliminated over time. Therefore, the economic and fiscal policies should be considered in the direction of economic stability.

Keywords

References

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