The Switching Pattern of Government Expenditures in Response to Sanctions in Iran

Abstract: The aim of international economic sanctions is imposing economic restrictions on target countries. In order to decrease the sanctions negative brunt on citizenry and make it ineffective, government may respond to sanctions through policies such as increasing the supply of public goods. This paper studies the regime changes of government expenditures in Iranian economy in response to economic sanctions using Markov-Switching model during period of 1978 to 2014. The results from estimated specified model indicate that firstly total, constructive and current expenditures in response to sanctions follow Markov-Switching pattern. Secondly, total, constructive and current expenditures in response to sanctions raise, and this finding confirm using public goods as defensive tool to contrast sanctions in Iran.