Factors affecting on Economic Growth of Iran's provinces: The Role of Government Expenditures, Income Inequality and Government Grants

Jeyhoontabar, Fozieh; Maddah, Majid

doi:10.22075/jem.2024.33377.1919

Factors affecting on Economic Growth of Iran's provinces: The Role of Government Expenditures, Income Inequality and Government Grants

Document Type : Original Article

Authors

Fozieh Jeyhoontabar ¹
Majid Maddah ²

¹ Assistant Professor in Economics, University of Shahid Bahonar of Kerman

² Professor in Economics, Semnan University

10.22075/jem.2024.33377.1919

Abstract

This research examines the factors affecting economic growth with an emphasis on the role of local governments and income inequality in the provinces of Iran during the years 1385 to 1400. In this regard, a dynamic panel data econometric model was specified to investigate the effect of the province's capital stock, the province's revenues from taxes and intergovernmental grants, government expenditures, and income inequality on the province's economic growth. The results of the estimation model indicate that the province's income from taxes and grants has a positive and significant effect on the economic growth of the provinces, and the income inequality in the provinces has a negative and significant effect on the economic growth. Other findings show that the interruption of gross domestic product and capital stock has a positive and significant effect on the economic growth of the provinces. Allocated grants increase the resources available to local authorities for the implementation of productive economic activities which as a resulte local growth will be affected. The research results are important from the policy point of view for several reasons. Firstly, government expenditures and provincial taxes, which are a reflection of fiscal policies, affect regional economic growth, whereby fiscal independence of provinces and the strategies of local governments in fiscal affairs can have a positive effect on improving the allocation of resources and regional economic growth. Secondly, income inequality, which reflects the performance of the government's distribution policies, affects the economic growth of the provinces, thus, reducing the inequalities in different areas will help to accelerate the regional economic growth and, as a result, national growth. Thirdly, considering a mechanism to allocate a part of natural resource revenues to provinces through the channels of income and allocation effects has a positive effect on the local economic performance.

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