Political Institutions and Government Spending Behavior in Iran

39 Pages Posted: 20 Feb 2014

See all articles by Sajjad Dizaji

Sajjad Dizaji

Tarbiat Modares University

Mohammad Reza Farzanegan

University of Marburg - Center for Near and Middle Eastern Studies (CNMS)

Date Written: January 31, 2014

Abstract

This study examines how quality of political institutions affects the distribution of government budget and how development of government spending in major sections shapes the political institutions in Iran. This question has become especially important due to recent international sanctions, aiming to change the political behavior of Iran. We use the impulse response functions (IRF) and variance decomposition analysis (VDC) on the basis of Vector Autoregressive (VAR) model with annual data from 1960 to 2006. Our results show the importance of political institutions in patronage and public goods provision spending in Iran. The results imply that a shock in positive changes of democratic quality of institutions leads to negative and statistically significant response of military spending and positive and statistically significant response of education expenditures in short term. If sanctions are successful to change the political behavior of Iran in short run (Dizaji and Bergeijk, 2013), then one can also expect to see a reduction in allocated budget for military in Iran.

Keywords: political institutions, government spending, Iran, VAR modelling, sanctions

JEL Classification: H110, H410, P160, O530, O430

Suggested Citation

Dizaji, Sajjad and Farzanegan, Mohammad Reza, Political Institutions and Government Spending Behavior in Iran (January 31, 2014). CESifo Working Paper Series No. 4620. Available at SSRN: https://ssrn.com/abstract=2398312

Sajjad Dizaji

Tarbiat Modares University ( email )

Jalal Ale Ahmad Highway
Tehran, Tehran 14115-111
Iran

Mohammad Reza Farzanegan (Contact Author)

University of Marburg - Center for Near and Middle Eastern Studies (CNMS) ( email )

Deutschhausstra├če 12
Marburg, 35037
Germany

HOME PAGE: http://www.uni-marburg.de/cnms/wirtschaft

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