Analysis of the impact of government expenditures and taxes on the level of consumption and production in Iran using the stochastic dynamic general equilibrium model

Olfati, Naser; Delfan, Mahboubeh; Alizadeh, Mohamad; Delangizan, Sohrab

doi:10.22126/pse.2025.10633.1128

Analysis of the impact of government expenditures and taxes on the level of consumption and production in Iran using the stochastic dynamic general equilibrium model

Document Type : Original Article

Authors

¹ Economics, Lorestan Faculty of Economics and Administrative Sciences

² Economics, Faculty of Economic and Administrative Sciences, Lorestan Khorramabad University

³ Economics, Faculty of Economics, Razi University, Kermanshah

10.22126/pse.2025.10633.1128

Abstract

The purpose of the current research is to investigate the consequences of the government's expenditure and taxes on consumption and production. The structure of dynamic stochastic general equilibrium (DSGE) models is based on the optimization of economic units (households and companies). The analyzed data was extracted from the central bank, Excel and Eviuse software were used for data preparation, and Diner software was used for model estimation, simulation, and conclusion from the model. The results show that if the government's goal is to maintain the consumption level of the private sector and avoid reducing the production level, then increasing the capital tax rate will be a more appropriate option than the consumption tax rate and the wage tax rate, and if the goal is to maintain the capital formation process and avoid If the reduction of the capital stock is constant, then the consumption tax rate is a more suitable option for the financial policy maker. Also, the results of the surveys show that the effect of all three tax rates on total consumption and production level are approximately the same and do not differ in this respect, but the increase in the capital tax rate compared to the other two rates causes a greater decrease in expenditures. In the end, it can be said that if the policy maker's goal is to reach a target economic growth rate in the long term, then it is necessary to have a certain level of capital, and therefore, regardless of the type of expenditure (current or construction), it is better not to change the capital tax rate. Otherwise, the capital tax rate can be a suitable option because it affects the level of private production and consumption less.

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