International Tax and Public Finance

, Volume 23, Issue 3, pp 522–549 | Cite as

Political institutions and government spending behavior: theory and evidence from Iran

  • Sajjad F. Dizaji
  • Mohammad Reza Farzanegan
  • Alireza NaghaviEmail author


This study examines how the quality of political institutions affects the distribution of the government budget in Iran. We first introduce a mechanism through which democracy can shift government expenditure from national defense (military) to productivity-enhancing public spending (e.g., education). Using impulse response functions and a variance decomposition analysis on the basis of a vector autoregressive (VAR) model, our results imply that the response of military spending to an improvement (a deterioration) of democratic institutions is negative (positive) and statistically significant, whereas that of education spending is positive (negative) and significant. Our results are robust to other indicators of political institutions, different orderings of variables in the VAR, and alternative specifications of government spending categories.


Political institutions Military spending Education spending Iran VAR modeling 

JEL Classification

H11 H41 P16 O53 O43 



The authors thank the helpful comments and suggestions of the Editor-in-Chief (Ronald B. Davies), two anonymous reviewers, Vesa Kanniainen, Christian Pfeil, Marcel Thum, and participants in the 8th Workshop on Political Economy (Dresden, 2014), and the 70th Annual Congress of the International Institute of Public Finance (Lugano, 2014).


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Sajjad F. Dizaji
    • 1
  • Mohammad Reza Farzanegan
    • 2
  • Alireza Naghavi
    • 3
    Email author
  1. 1.Department of EconomicsTarbiat Modares UniversityTehranIran
  2. 2.Department of Economics of the Middle East, Center for Near and Middle Eastern Studies (CNMS)Philipps-Universität Marburg and CESifoMarburgGermany
  3. 3.Department of EconomicsUniversity of BolognaBolognaItaly

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