The Relationship between Economic Growth, Inflation and Government Expenses

Government’s attendance and their intervention can affect inflation and production in different ways, the most important one is government expenses. This study by use of Structural Vector Auto-Regression (SVAR) has investigated the relationship between economic growth, inflation and government expenses during a period of 2010-1991 Results of the instant reaction functions study for the variable production show that, total, current and development expenses have a significant positive effect on production. But development expenses effects on production is much more consistent. Inflation against total expenses and its implementation hasn’t shown a significant response. So government by reducing its tenure costs can steps in a more consistent economic growth way. On the other hand, financing of government deficit spending, which is a source of monetary base and liquidity increase in each country’s economy, is reduced and prices general level is fixed at lower levels as well.

Keywords:

Inflation , economic growth , government expenses , structural vector auto- Regression