The impact of macroeconomic variables and tax incentives on Iran's business cycles

Subject Areas : Monetary Economics

Samane Shaki ¹ , Kambiz Peykarjoo ² , Farhad Ghaffari ³

1 - PhD. Candidate in Economics, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran, [e-mail]
2 - Assistant Professor in Economics, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran (Corresponding Author), [e-mail]
3 - Associate Professor in Economics, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran, [e-mail]

Received: 2024-07-27 Accepted : 2024-12-02 Published : 2024-12-02

Keywords: Governance, Monetary Policies, Financial Policies, Economic Welfare, Markov Switching Regime Change Model. JEL Classification: E52, G12, G19, G24, G32.,

Abstract :

This study aimed to analyze the impacts of the governance index and monetary and financial policies on economic well-being in Iran's recession and boom regimes during the period of 1996 to 2022 by using the Markov-Switching Approach. Based on the results, per unit increase in Economic well-being, regulation quality, financial stabilization, effective tax rate and oil price, respectively; 0.04, 0.02, 0.03, 0.03 and 0.14 units of production gap decreases during the boom period. Also, uncertainty in the government's current expenditures, uncertainty in the government's construction expenditures, liquidity during the recession lead to an increase; 0.12, 0.13 and 0.14 gap units are produced. Keynesian economists argues that the regulation of financial policies (tax and spending) should lead to economic prosperity, while in the classical school, taxes are a neutral financial lever, or if the government budget deficit is due to an increase in current expenditures (general government expenditures), with Noting that this type of spending only increases aggregate demand, it may cause inflation, but if the government's budget deficit is due to the implementation of an active fiscal policy in order to free the economy from recession, the government by increasing its investment spending and creating a deficit in The budget implements an expansionary financial policy and its economic effects in the long run will be to direct the economy towards production.

References:

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