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Fiscal Policy Uncertainty and Industrial Investment in Iran

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  • Safari, Omid
  • Assadzadeh, Ahmad
  • Mirjalili, Seyed Hossein

Abstract

Industrial investment in Iran, especially in the wake of sanctions’ intensification in the 2010s, decreased significantly. The government implemented fiscal policy which has been associated with uncertainty. In this paper, using a dynamic panel model and generalized method of moments, we examined the effect of fiscal policy uncertainty on investment in 24 industrial groups in Iran over the period 2002-2020. The results indicated that the growth of fiscal level shock, resulted in a low but positive effect on investment directly. However, the coefficient of cross effect between the growth of fiscal level shock and the fiscal policy uncertainty undermined the positive effect on industrial investment. The government has had two effects on industrial investment indirectly through the demand side shock. By creating demand, it has had a positive effect on industrial investment with the cross effect between the growth of the fiscal level shock and industrial sales. However, on the other hand, the growth of the fiscal level shock has been associated with the creation and growth of fiscal policy uncertainty, so that the cross effect between the growth of fiscal policy uncertainty and the growth of industrial sales on industrial investment shows a high negative coefficient. The results of these two effects suggest that due to high uncertainty, the indirect government effect on investment in 24 industrial groups is negative, which happens through the demand-side shock. Moreover, the growth of fiscal policy uncertainty, sanctions, and interest rates, respectively, have had the most adverse effect on investment in 24 industrial groups in Iran.

Suggested Citation

  • Safari, Omid & Assadzadeh, Ahmad & Mirjalili, Seyed Hossein, 2024. "Fiscal Policy Uncertainty and Industrial Investment in Iran," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 16(1), pages 229-259.
    • Handle: RePEc:zbw:espost:300591
    DOI: 10.22111/ijbds.2024.49134.2126
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    References listed on IDEAS

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    1. N. Bloom, 2016. "Fluctuations in uncertainty," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 4.
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    Cited by:

    1. Mirjalili, Seyed hossein, 2025. "Economic Resilience and Vulnerability: Concepts and Indices," MPRA Paper 126492, University Library of Munich, Germany, revised 11 Jul 2025.
    2. Mirjalili, Seyed hossein & Dehghan Khavari, Saeed & Mirdehghan, seyed abbas & Valizadeh, Reza, 2008. "رتبه بندی و تعیین مزیت نسبی فعالیتهای صنعتی استان یزد با استفاده از روش تلفیقی تحلیل عاملی و تکسونومی عددی [Ranking Industrial Activities in Yazd province; Synthesis of Factor Analysis and Numerica," MPRA Paper 125603, University Library of Munich, Germany, revised 12 Apr 2009.
    3. Safari, Omid & Assadzadeh, Ahmad & Mirjalili, Seyed Hossein, 2023. "Measuring Fiscal Policy Uncertainty in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 18(4), pages 457-496, December.

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