The purpose of this paper is to examine and evaluate the effects of government intervention on the Iranian economy over the last few decades. It is shown that public expenditures affect the value added of each economic sector not only simultaneously, but lagged over several periods. Regression results show that the value added from the agricultural sector has never been affected by government expenditures during the period of study. Estimation of both the linear and logarithmic models concerning the industrial sector leads to the same results. These results do not imply that we should reduce the level of government expenditures, instead we should strive to find reasons behind the inefficient performance of the public sector.