Testing for Twin Deficits and Ricardian Equivalence Hypotheses: Evidence from Iran

The main purpose of this study is to examine the relationship between budget deficit and current account deficit in Iran from 1971 to 2007. Twin deficits, which argues that a larger budget deficit leads to an expanded current account deficit, and Ricardian equivalence hypothesis, which states that there is no casual relationship between these two deficits, are examined for this purpose. To achieve this goal, Johansen co-integration and Granger causality tests are used for the period under study. The results indicate that there exists a long run equilibrium link between budget deficit and current account deficit. There is a one-way causality relationship from the budget deficit toward the current account deficit

The Relationship between Government Size and Economic Growth in Iran; Bivariate and Trivariate Causality Testing

The aim of this study is to demonstrate the relationship between government size and economic growth in Iran within bivariate and trivariate causality framework. For this purpose, Vector Auto Regressive Model, Johansen Test and Auto Regressive Distributed Lag Model were used for analyzing the long run relationship, whereas Error Correction Model was considered for the short run. Moreover Wald Coefficient was used for bivariate and trivariate causality test. The results show that the relationship between government size and economic growth in Iran is negative. Furthermore there is a one-way causality relationship for the long run and the short run-from government size to economic growth. Inclusion of unemployment and oil revenue (separately) as the third variable causes the relationship to remain negative. However the direction of causality depends on the choice of the third variable. If unemployment rate is considered as the third variable instead, there will be no causality between the two variables in the long run. Although in the short run government size is still the cause of economic growth. However, consideration of oil revenue as the third variable results in a two-way causality relationship between the government size and the economic growth in the long run and the short run