Document Type : Research Paper
Author
Assistant Professor, Department of Economics, Shahid Chamran University, Ahvaz, Iran
Abstract
Consumption function explains the relationship between consumption expenditures and income. This study aims to estimate the aggregate consumption function in Iran during 1974-1998. Considering the presence of duality in the economy of Iran، the study deals with consumption function in rural and urban sectors، separately. In addition، another disaggregation has been made to consider the consumption of durable and non-durable goods in those two sectors.
The study reviews the consumption theory of Keynes، Dusernberry، Modigliany as well as Friedman. Then it testes empirically these theories in the economy of Iran applying an econometric method using OLS، interactive Cochrane-Orcutt and two step Wallis technique. To avoid a spurious regression it was assured that all variables are cointegrated. Findings from this research show that the aggregate consumption in Iran during 1974-1998 is more compatible with Friedman’s theory of permanent income. Other related theories are not deliberately able to explain the consumption behaviour in Iran.
The findings also show that the long-run consumption function in Iran slops up constantly with no intercept. Therefore، in the long run، the marginal propensity to consume in Iran equals the average propensity to consume.
Keywords
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