Planning and Budgeting

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If with expansionary (contractionary) fiscal policy, private consumption increases (decreases), fiscal policy has Keynesian nature else, it has non- Keynesian nature. If in certain period, sometimes fiscal policy has Keynesian effects and sometimes it has non- Keynesian effects, it will have non-linear effects. Since, there is not a paper about non- linear fiscal policy in IRAN, the purpose of this paper, is to test the non-linear effects of fiscal policy on private consumption in IRAN, during 1993:2-2010:4. So we use a Markov-switching model with FTP and TVTP approach. The results of the estimation of the Markov switching model with FTP present the existence of significant non-linarites in the effects of fiscal policy in IRAN. Also the Keynesian regime is an absorbing regime such that the probability of remaining in the non- Keynesian regime is just, 1%. Furthermore, Estimation results for the TVTP model show that we cannot find any strong evidence about the sources of these non-linarites.

Keywords: fiscal policy, Keynesian and Non- Keynesian Regime, Markov Switching Model, FTP, TVTP.

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