Can Budget Deficits Financing, Crowed Out Private Sector? Comparative Study of the Cases of Iran and Algeria

Document Type: Research Paper


Faculty of Economics, Management and business, Tabriz University


This paper develops an analysis of budget deficit financing in terms
of a crowding out or crowding in effect on the activity of the private
sector for the economies of Iran and Algeria as two MENA countries,
(because of its economic structures (dependence on oil revenue)) during
the period 1970-2012 by using Cointegration and Vector Error
Correction approaches. The analysis confirms the existence of a
crowding out effect in Algeria and a crowding in effect in Iran.


1- Aschauer, D. A. (1989a), “Is Public Expenditure Productive?”, Journal
of Monetary Economics, Vol. 23, Pp. 177- 200.
2- Aschauer, D. A. (1989b), “Does Public Capital Crowd Out Private
Capital?”, Journal of Monetary Economics, Vol. 24, Pp. 171-188.
3- Ayadi, E., C. Berthomieu et M. Sameti (2004) « Efficacité des dépenses
publiques d’investissement et croissance. Analyse comparée du cas de l’Iran
et de la Tunisie », Pp : 47-76, in Berthomieu, C., A. Chaabane et A. Ghorbel
(eds) (2004), La restauration du rôle de l’Etat dans la croissance et le
développement économiques, Publisud, Paris.
4- Bailey, M. (1971), National Income and the Price Level, McGraw-Hill.
5- Barro, Robert J. (1989), “Rational-Expectation”, National Review, Vol.
41, Pp. 49-50.

6- Barro, R.J. and C.J.Redlick, (2010), “Macroeconomic Effects from
Government Purchases and Taxes”, The Quarterly Journal of Economics,
Vol. 126, Issue 1, 51-102.
7- Bernheim, B. D. (1989), “A Neoclassical Perspective on Budget
Deficits”, Journal of Economic Perspectives, Vol. 3, Pp. 55-72.
8- Blejer, M. I. and M. S. Khan (1984), « Government Policy and Private
Investment in Developing Countries », IMF Staff Papers, Vol, 31, No. 2. Pp.
379- 403.
9- Blinder, A. S. and R. Solow (1974), “Analytical Foundations of Fiscal
Policy”, The Economics of Public Finance, Washington: Brooking
10- Brittle, S., (2010), “Ricardian Equivalence and the Efficacy of Fiscal
Policy in Australia”, Australian Economic Review, Vol 43, No. 3, 254-269.
11- Buiter, W. H. (1977), “Crowding Out and the Effectiveness of Fiscal
Policy”, Journal of Public Economics, Pp. 309-328.
12- Buiter, W. H. and J. Tobin (1978), “Debt Neutrality; A Brief Review of
Doctorine and Evidence”, Cowls Foundation Paper 497
13- Buiter,W. H. , (2010), “The Limits to Fiscal Stimulus”, Oxford Review
of Economic Policy, No. 26, 48-70.
14- David, P. A. and J. L. Scadding (1974), “Private Savings:
Ultrarationality, Aggregation, and Denison’s Law”, Journal of Political
Economy, Vol. 82, Pp. 225-250.
15- Economic Report and Balance sheet 1981-1990, Central Bank of the
Islamic Republic of Iran.
16- Eisner, R. (1989), “Budget Deficits: Rhetoric and Reality”, Journal of
Economic Perspectives, Vol. 3, Pp. 73- 93.
17- Farmer, R.E. A. and D. Plotnikov, (2010), “ Dose Fiscal Policy Matter?
Blinder and Solow Revisited”, NBER Working Paper, 16644, http://
18- Feldstein, M. (1988), “The Effects of Fiscal Policy when Incomes are
Uncertain: A Contribution to Ricardian Equivalence”, American Economic
Review, Vol. 79, No. 1, 14- 23.
19- Feldstein, M. (2009), “Rethinking the Role of Fiscal Policy”, American
Economic Review, Vol 99, No. 2, 556-559.
20- Green, W. (2007), Econometric Analysis, 7 edition, Hardcover.

21- Günçavdi, Ö., M. Bleaney and A. MC Kay (1999), “The Response of
Private Investment to Structural Adjustment: A Case for Algeria”, Journal of
International Development, N° 11, pp. 221-239.
22- Heng, T. K. (1997), “Public Capital and Crowding in”, The Singapore
Economic Review, Vol. 42, No. 2, Pp. 1-10.
23- Huixin,B. and Leeper, E., (2010), “Sovereign Debt Risk Premia and
Fiscal Policy in Sweden”, NBER Working Paper, 15810, http://
24- Johansen, S. (1984), Econometric Methods, 3rd edition, Mc Graw-Hill,
International Student Edition, London.
25- Jongwanich, J., (2010), “The Determinants of Household and Private
Savings in Thailand”, Applied Economics, Vol. 42, No. 8, 985-976.
26- Juselius, K. (2006), The Cointegrated Var Model : Methodology and
Application, Advanced Texts in Econometrics, Oxford University Press.
27- Le Page, J. M. (1991), Economie Monétaire, Edition Cujas.
28- Mama, T., B. Kamgnia Dia, J.Ouédraogo et A. Zeufack, (2002), «
Ajustement Structurel et Investissement Privé en Afrique. Les Cas du
Burkina Faso, du Cameroun et de la Cote d’Ivoire », Secrétariat d’Appui
Institutionnel à la Recherche Economique en Afrique (SISERA), Dakar,
30- National Office of Statistics of Algeria,
31- Premchand, A. (1984), Government Budgeting and Expenditure
Controls: Theory and Practice, IMF,Washington, D.C.
32- Sargent, T. and N. Wallace (1981), “Some Unpleasant Monetarist
Arithmetic”, Quarterly Review, Federal Reserve Bank of Minneapolis, No.
5, Pp. 1-18.
33- The Central Bank of Iran, different data Books.
34- Yellen, J. L. (1989), “Symposium on the Budget Deficit”, Journal of
Economic Perspectives, Vol. 3, No. 2, Pp. 17-21