Dynamic Effects of Oil Revenues on the Government Behavior in the Allocation of Consumption Expenditure on Public and Defense Affairs

Oil revenues play an important role in the economy of Iran and on average, 56% of the Iranian government revenues originate from oil resources. Therefore, dependence of public budget on oil revenues, makes the unpopularity of of fiscal policies and periodic fiscal policies in the economy. Accordingly, the shock of oil revenues plays an important role on government's behavior in allocating consumption expenditure to social, economic, public and defense affairs. The aim of this study is to analyze the dynamic effects of oil revenues on the government behavior in the allocation of consumption expenditure to the social, economic, public and defense affairs in Iran, that using Vector Autoregressive model and impulse response functions (IRF) and variance decomposition analysis (VD) techniques in the period (1978-2015). The most important result of impulse response functions indicate that oil revenue shocks in the short run have a positive effect on the allocation of consumer spending in social, defense and public expenditure. Also, the results of of variance decomposition analysis indicate that oil revenue shocks have the largest share in change of economic expenditure, but had little effect on social and public expenditure.