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The effects of oil shocks on government expenditures and government revenues nexus (with an application to Iran's sanctions)

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  • Dizaji, Sajjad Faraji

Abstract

The main purpose of this study is to investigate the dynamic relationship between government revenues and government expenditures in Iran as a developing oil export based economy. Moreover, I want to know how oil price (revenue) shocks can affect this relationship. The results of the impulse response functions and variance decomposition analysis indicate that the contribution of oil revenue shocks in explaining the government expenditures is stronger than the contribution of oil price shocks. Moreover the results of the vector autoregression (VAR) and vector error correction (VEC) models show that the strong causality is running from government revenues to government expenditures (both current and capital) in Iranian economy while the evidence for the reverse causality is very weak. Overall the results support the revenue–spending hypothesis for Iran. My results imply that those sanctions aiming to restrict the Iranian government's oil export revenues, potentially can affect the government total expenditures as an important engine for developing the Iranian economy.

Suggested Citation

  • Dizaji, Sajjad Faraji, 2014. "The effects of oil shocks on government expenditures and government revenues nexus (with an application to Iran's sanctions)," Economic Modelling, Elsevier, vol. 40(C), pages 299-313.
    • Handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:299-313
    DOI: 10.1016/j.econmod.2014.04.012
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    More about this item

    Keywords

    Iran; Government expenditures; Government revenues; Oil shocks; Vector autoregression (VAR); Sanctions;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • H - Public Economics
    • H - Public Economics
    • H - Public Economics

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