Modeling nonlinear effects of government spending and its financing resources on GDP: Smooth Transition Regression Model

This study investigates the impacts on government spending and its financing resources including tax revenues، oil revenues and government debts on GDP in Iran during 1350 to 1387 period. For this regards، Smooth Transition Regression (STR) model has been employed. The results show that، there is a significant nonlinear relationship among government spending and its financing resources and GDP with respect to inflation as a transition variable. The STR estimation results show that، threshold value of inflation is 14. 8 percent and smoothing parameter is equal to 10. Based on the results، in first regime where inflation is lower than threshold value، government spending، tax revenues، oil revenues، government debts and inflation have positive، negative، negative، positive and positive effects on GDP، respectively. In second regime، where inflation is higher than threshold value، the maintained variables have negative، positive، positive negative and negative effects on GDP. All the estimated coefficients of model are significant. The results of robustness check tests also indicate on enough validity of STR model in order to fit the maintained relationship. These results emphasis on inflation control and necessarily of reduction the government dependence on oil revenues and banking debts.