An investigation of the non-linear relationship between government revenues and government size using the MRS -GRACH approach

Government intervention in the economy and its size has always been one of the most important topics in the field of economy which has always been attracted the attention of policymakers and government planners as well as economic actors. In the literature, government size applied to analyze the government role in the economy. Since the governments with respect to its resources, tries to improve the quality of life and economic and social development of society, this study investigates impact of government revenues including oil revenues, tax revenues and other revenues as the most important part of government revenues on government size in Iran, using the quarterly data over the period 1990:2- 2015:1 by applying Markov Regime Switching Generalized Auto Regressive Conditional Heteroskedasticity model. The result suggests that an optimal model consists of two regimes, and each three variables including, oil revenues, tax revenues and other revenues have positive impacts on government size in both regimes zero and one. Moreover, the influence of other revenues was obtained more than the effect, of tax and oil revenues on the government size. The impact of government revenues on the government size in regime one (bigger government regime) is more than of regime zero. However, The sustainability of the regime zero is greater than the regime one.