The structural budget deficit is one of the most important problems of developing countries. They borrow from the banking system, the private sector or outside world to finance this deficit. This approach can have different effects on the economy with regard to the composition and structure of debt and economic conditions of countries. The present study investigated the short-run and long-run effects of government debt on economic growth of Iran using ARDL in the period of 1975 to 2013.
Results showed that the ratio of government debt to GDP has a negative impact on economic growth. This impact on economic growth model based on oil revenues is more than the model based on non-oil GDP, also that in long run more than short term. Also results indicated the importance of physical capital is remarkable in both models in the short-term and long-term, but the human capital is significant only in non-oil growth pattern.