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Economic Sanctions and Military Expenditure in Iran: A Brief Survey

Mohammad Reza Farzanegan
CESifo, Munich, 2023

EconPol Forum 24 (3), 31-35
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  • The effects of sanctions on military spending depend on the relative weight of income and security effects for the target country. If the income effect is larger than the security, then the country is more likely to observe a decline in military spending
  • Economic sanctions have been shown to decrease military spending in Iran, as supported by time series models (VAR & ARLD) and counterfactual analysis. Therefore, it can be inferred that in this case the income effects of sanctions were stronger than the security effects
  • By cutting the flow of oil rents, sanctions may force the government to increase taxes and may prompt political reforms
  • Political reforms may lead to an increase in the share of non-military spending, thereby decreasing military expenditures
  • The military industry in Iran has significant linkages with the country’s economy, so sanctions may reduce military spending, but they may also decrease economic growth due to the aforementioned linkages

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