Journal of Economic Modeling Research

There is a situation that due to economic shocks and imbalances in structural budgets and its continuation leads to stress in governments in uncertainty conditions. Fiscal stress as a volatile situation in financing of local governments can exacerbate the inability of governments to meet short-term and long-term fiscal commitments and excessive dependence on the central government. So the positive and negative effects of stress are related to the actions and responses of central and local governments. It is essential that policymakers in central and local governments pay attention to accurate and timely signs of fiscal stress for respond to stresses effects. In this study, we tried to clarify the fiscal situation in 31 provinces of Iran by calculating the local fiscal stress index from variables of fiscal structure and budget of each province and then estimate the threshold and spatial effects of the index through Panel Smooth Transition Regression method on economic growth and employment over the period 2005-2017. The results show that border provinces have the highest stress among other provinces, and provinces located in the center or near the capital have less stress. These results indicate the high centralism that exists in the provinces of Iran and has hindered the fiscal independence of local governments so that they can control and regulate their own revenues and expenditures, and in this case, they suffer less fiscal pressure and stress.