Abstract

This study examines the effects of economic, political, and financial risks on government debt in Iran over the period 1984–2023 in the Iranian calendar, using a threshold regression approach. Given international sanctions and limited access to global financial markets, budget deficit financing relies primarily on domestic resources; consequently, domestic government debt is the focus of the analysis. The findings indicate that the government’s fiscal behavior is influenced by a threshold value of 3.6, which distinguishes fiscal stability from the onset of a crisis. Economic risk has a positive and statistically significant effect on government debt in the first regime, whereas its marginal effect becomes negative and significant in the second regime. Financial risk has a negative and significant effect in the first regime but a positive and significant marginal effect in the second. Political risk has a positive and significant effect on government debt in both regimes.

JEL Classification: H63, E02, C33.