Fiscal sustainability in emerging countries: Evidence from Iran and Turkey

This paper investigates the fiscal sustainability of two emerging countries – Iran (an oil-producing country) and Turkey (an agricultural country) – for both stochastic and non-stochastic environments. Cointegration and multicointegration methodologies were used to evaluate fiscal budgeting processes in these countries. A model for testing the sustainability of a fiscal policy, based on Barro's tax smoothing, was also developed to test the Iranian fiscal policy. It was found that the fiscal budgeting process in both countries is not sustainable. Furthermore, the Iranian fiscal policy, as far as oil and gas income is concerned, is not a fully responsible policy.