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Political Institutions and Government Spending Behavior: Theory and Evidence from Iran

Listed author(s):
  • Sajjad Faraji Dizaji

    (Tarbiat Modares University)

  • Mohammad Reza Farzanegan

    (** Philipps-University of Marburg, Center for Near and Middle Eastern Studies (CNMS), CESifo, MACIE)

  • Alireza Naghavi

    ()

    (University of Bologna and Centro Studi Luca d'Agliano)

This study examines how quality of political institutions affects the distribution of government budget in Iran. We first introduce a mechanism through which this can shift government expenditure from patronage to more constructive public spending. Using impulse response functions (IRF) and variance decomposition analysis (VDC) on the basis of Vector Autoregressive (VAR) model, our results imply that a positive shock towards more democratic institutions leads to negative and statistically significant response of military spending and positive and statistically significant response of education expendi-tures. Our results are robust to different political institutional quality indicators, ordering of variables in the VAR and different specifications of government spending categories.

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File URL: http://www.dagliano.unimi.it/media/WP2014_381.pdf
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Paper provided by Centro Studi Luca d'Agliano, University of Milano in its series Development Working Papers with number 381.

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Date of creation: 14 Apr 2015
Handle: RePEc:csl:devewp:381
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