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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Sajjad Faraji Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2015. "Political Institutions and Government Spending Behavior: Theory and Evidence from Iran," Development Working Papers 381, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:381
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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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