The Effect of Fiscal Policy on Unemployment and Inflation in Provinces of Iran: A GVAR Approach

Subject Areas : Labor and Demographic Economics

Nasrin Ebrahimi ¹ , Mehdi Pedram ² , Mir Hussein Mousavi ³

1 - PhD in Economics, Al-Zahra University, Tehran, Iran
2 - Professor, Department of Economics, Al-Zahra University, Tehran, Iran
3 - Associate Professor, Department of Economics, Al-Zahra University, Tehran, Iran

Received: 2020-02-08 Accepted : 2021-05-13 Published : 2021-05-22

Keywords: E31, R11, inflation, E24, Unemployment, JEL Classification: E62, Regional Effects, GVAR Approach, C13. Keywords: Fiscal Policy,

Abstract :

Abstract Since Iran is a regionally dispersed country, this motivates us to analyze whether or not a national fiscal policy has different effects on its provinces’ unemployment and inflation rates using a GVAR approach during 2005:q1-2016:q1 period. The results indicate that one positive standard error as national fiscal shock can significantly reduce unemployment in some provinces. These responses are similar in terms of timing but their amount is different. Also, this positive shock has a negative effect on inflation in some provinces. All responses are approximately similar in terms of timing. In Spite of this similarity, shock responses vary in terms of amount. According to the results in the framework of the models designed in this study, it is proposed that policymakers include the decentralization in the budget planning.

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