Investigation the Effectiveness of Fiscal Policy Instruments in Provinces of Iran: Dynamic Panel Data and GMM - SYS Methods

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Abstract

Regarding the decentralization of credits management, this study examined the effect of fiscal policies on gross domestic product of the Iranian provinces over the period 2001-2009. Therefore, we used dynamic panel data and employed GMM-SYS method to examine the model. The results show that the government expenditure and tax multiplier coefficients are less than one in short - run but greater than one in the long-run, as expected by theories. Furthermore, our findings indicate that coefficient for government expenditures are larger than tax revenues. However, investment expenditure and business cycles of the provinces have no significant and considerable effect on government expenditure multiplier coefficients, either in short run or long run.
JEL Classification: E62, C33, H72

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