Introduction: The causal dynamics between environment, health expenditures and economic growth has recently started to be studied in the economics literature for both developing and developed countries.

Methods: This study examines the causal relationship between CO₂ emissions, health expenditures and economic growth using dynamic simultaneous-equations models for Iran over the period 1972-2012.

Results: Our empirical results show that there is bidirectional causality relationship between CO₂ emissions and economic growth; there is also unidirectional causality relationship from health expenditures to economic growth. The positive bidirectional causality relationship between CO₂ emissions and economic growth will be very important to environmental quality in next years in Iran.

Conclusion: It is clear that government would like to increase economic growth over the period of next Five-Year Development Plan. It seems that policymakers must examine the requirements for investment to promote environmental protection and increase the technological transfer to reduce the environmental damage.