The Asymmetric Effect of Inflation on the Budget Deficit in Iran: Quantile Regression Approach

Document Type : Research Paper


1 M.A. in Economics, University of Tabriz

2 Associate professor of Economics, University of Tabriz

3 Professor of Economics, University of Tabriz


Inflation affects budget deficit on both revenue and expenditure sides. Understanding the effect of inflation on the government's budget deficit can provide conditions for controlling inflation and reducing the budget deficit. Using of seasonal data over the period of 1991:2-2015:1, this study investigates the effect of inflation on budget deficit in Iran. For this purpose, the research model has been estimated in different percentiles using a quantile regression. The results indicate that, as inflation rises, the budget deficits decreased. In the other words Patinkins effect dominants of Tanzis effect. In fact, the result shows that although inflation reduces the real expense and revenues of government, but it is reducing government expense more than government revenues and as a result increasing inflation caused to reducing of the budget deficit. The results of the research show, in primary percentiles, the effect of inflation on the deficit is more than on intermediate percentiles. This means that there is a non-linear relationship between inflation and budget deficits. With the implementation of resampling (bootstrap), the results of quantile regression are confirmed.


Main Subjects

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