Determination of Government Public Debt Equilibrium Path and its Comparison with the Actual Path of Debt in Iranian Economy within the Endogenous Growth Model

• Published in: Faṣlnāmah-i pizhūhish/nāmah-i iqtiṣādī (Online) Vol. 19; no. 73; pp. 119 - 146
• Main Authors: ali eskandaripour, davoud mahmoudinia, azadeh yousefi
• Format: Journal Article
• Language: Persian
• Published: Allameh Tabataba'i University Press 01.06.2019
• Subjects: budget deficit; endogenous growth model; government public debt; oil revenues
• DOI: 10.22054/joer.2019.10765
• ISSN: 1735-210X

The global financial crisis has increased the attention of scholars to stabilization and sustainability of government's fiscal policies in recent years. The crisis also reminded governments that they should have a special look at their debt sustainability so that they can repay their debts in different scenarios, including economic recession, at a minimum, in order not to enter a Ponzi game. In recent years, the level of debt in many developed and developing countries have been increasing, and Iran was not an exception to this phenomenon. Given that Iran is an oil-exporting country and its budget is heavily dependent on oil revenues, the lack of an optimal route could have significant effects, including that it could lead to revenues from the sale of oil to repay debt, as well as imposing heavy debt burden on future generations. Hence, in this study, we try to extract the equilibrium debt path in Iranian economy in a framework of an endogenous growth model and compare it with the actual debt path in Iran. The results of simulating equilibrium equations show that the equilibrium path of debt in Iranian economy is lower than its actual path. Therefore, as a policy recommendation, fiscal authorities of the country should pay particular attention to budget deficit and debt and, through a proper taxation system and the correct utilization of oil revenues, can make the actual debt path close to its optimum level to prevent excessive government borrowing from banking system and the negative consequences it poses.