Document Type : Research Paper

Authors

• Naser Khiabani
• mahbubeh delfan

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Abstract

This study investigates how fiscal policy shocks affect macroeconomic activities in an oil exporting economy using a real business cycle model (RBC). We make distinction between public sector of economy from private sector and evaluate the effect of public crowded- (in or out) effect on private sector. Our findings indicate that in Iran, a positive fiscal expansion- a positive consumption expenditure shock- does not have a positive, sizeable and permanent effect on the investment, employment and production of private sector. On the other hand, the results show that the shock has a negative effect on private sector consumption expenditure. This result is consistent with the Ricardian equivalence theorem, suggesting that a government cannot stimulate spending since people assume that whatever is gained now will be offset by higher taxes in the future.

Keywords

• Government Consumption Expenditure Shocks
• Business Cycle
• Private Sector
• Dynamic Stochastic General Equilibrium Model