Evaluation of Steady State Gap in Policy Making for Iranian Economy Simulation of a Dynamic General Equilibrium OLG Model

Evaluation of several decades’ policy experience in Iranian economy indicates the existance of a gap between its current state and targeted state. The simulated steady state of Economy using a dynamic general equilibrium OLG model shows that there are differences between the steady values and current values of all macroeconomic variables in the model, so that per capita capital stock, per capita income and consumption, employment and interest rate are all different from their current values by 0.618, 0.702, 0.201.042 and 0.03 respectively. The optimum state reaction to a proposed fiscal policy package shows that if economic policy makers cut the tax rate by 10 percent, raise the retirement age by 4 years and public pension by 10 percent and cut the time preference rate by 10 percent, in response the steady state per capita capital stock, income and consumption, employment and interest rate will change by 11.67, 4.14, 9.3, 11.25 and -0.41 percent respectively. These findings emphasise the role of revisions in economic policies in achieving targeted values in future development plans. According to the findings of this study, it is needed to focus on current state of the economy in planning for the targeted values of macroeconomic variables and their promotion to higher levels