Financial Transparency, Government Size, and Government Expenditure Efficiency in Iran’s Business Cycle Fluctuations
Keywords:
Markov switching regime change model, periodic fluctuations, efficiency of government spending, financial transparency, government sizeAbstract
Government effectiveness, government size, and governance indicators have been intensely studied by social science researchers over the past three decades. The World Bank (1989) in a report examined the effects of poor governance on delayed economic growth in developing countries. In this report, which stemmed from concerns about the relationship between development, democracy, corruption, and various social issues, the concept of good governance and financial transparency was raised. The report’s findings emphasized that the weakness in implementing and operationalizing governance principles is one of the most significant obstacles to growth and development in African countries. On the other hand, the concept of financial transparency has been used since the seventeenth century in relation to the misuse of public officials for personal gain. Financial transparency is a social, political, and economic phenomenon that can affect the efficiency of government expenditures in the economy. In this study, we investigate the role of financial transparency, government size, and government expenditure efficiency in Iran’s business cycle fluctuations during recession and expansion regimes. For this purpose, using the Markov regime-switching model, the effects of the studied variables were examined annually over the period 1996 to 2022. Based on the results, for every one percent increase in oil shocks and budget deficit, business cycle fluctuations increase by 44 and 27 units, respectively. In addition, government expenditure efficiency, financial transparency, regulatory quality, government size, and control of corruption during expansion periods lead to reductions of 27, 13, 12, 10, and 1 units in business cycle fluctuations, respectively. It should be noted that a large part of the increase in Iran’s business cycle fluctuations is due to the failure of Iranian society to internalize and sustain its economy. Therefore, the ultimate path to long-term improvement emphasizes production growth, where creating the conditions for Iran’s production growth largely depends on controlling economic instability. Thus, one of the essential requirements for reducing Iran’s business cycle fluctuations and internalizing Iran’s economy is attention to political relations and efforts toward improving governance quality.
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Copyright (c) 2025 Seyed Amirhosein Shekarabi (Author); Yeganeh Mousavi Jahromi (Corresponding author); Farhad Ghafari (Author)
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