Abstract The purpose of this article is to assess the cyclical behavior of government expenditures in Iran using an estimated new Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. The model takes into account the distortionary taxations on wage, dividend, and consumption, and two kinds of government expenditures including consumption of goods and services, and investment. All of these fiscal policy instruments are supposed to respond to government debt and output. The model is estimated using a Bayesian inference by Markov Chain Monte Carlo method. To do so, a quarterly data set from 1993:Q2 to 2016:Q2 is used. The results show that (1) fiscal policy instruments are mostly affected by output, rather than government debt, (2) compared with tax on wage, tax on consumption has a higher negative impact on output which is more ephemeral, and (3) government expenditures present a pro-cyclical behavior in Iran.
