Asymmetric adjustment in order to re-examine the size of government and production of Wagner's law in Iran

Haidari, Hassan; Aghania, Parisa

doi:10.22075/jem.2019.17833.1311

Asymmetric adjustment in order to re-examine the size of government and production of Wagner's law in Iran

Document Type : Original Article

Authors

Hassan Haidari ¹
Parisa Aghania ²

¹ Professor in Economics, Department of Economics, Faculty of Economics and Management, University of Urmia

² Ph.D. student in economics, Department of Economics, Faculty of Economics and Management, University of Urmia

10.22075/jem.2019.17833.1311

Abstract

Referring to recent studies, considering the linear relationship between production and spending can lead to misleading results. Therefore, this study aimed at examining the asymmetric adjustment of government size and production in the Iranian economy, using the seasonal data of the 1969-1996 period and applying threshold vector error correction model (TVECM) to re-examining Wagner's law in Iran. The results of the study indicate that Wagner's law is valid for Iran's economy but there is a causal relationship between GDP and government (ratio of government expenditure to gross domestic product), since Wagner's law in the normal regime (a regime with shrinking shocks) and in the regime of boundaries (the regime with incremental shocks) Is established. In the case of a deviation from the long-run equilibrium, in the second regime, the Wagner's law is faster than the first regime, and, moreover.

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