Investigating Impact of macroeconomic variables on the government budget deficit in Iran's economy: an approach with VAR-VECM

Document Type : Original Article


1 Assistant Professor, Department of Economics, Payam Noor University (PNU), Tehran, Iran

2 Master student , Department of Economics, Payam Noor University, Tehran, Iran.


The economic tasks of governments are the optimal allocation of resources, fair distribution of income, and economic stability; the budget is the most important economic tool for achieving these goals. Governments are incapable of implementing balanced budgets for various reasons and face a budget deficit to finance their current development expenses. The budget deficit in an economy is measurable by the difference between government revenues and payments; it is an important policy tool in developing countries. The state budget situation is important for government policy and its role as an economic policy tool. The study of the effect of macroeconomic variables on the government budget deficit through a model of correction of vector error in the period 2001-2018 was the goal of this research. The results show that in the Iranian economy during the period under study, the variables of the economic growth rate and the exchange rate have been reversely associated with the budget deficit, while the variables of the inflation rate and the supply of money have had a direct impact on the government budget deficit. The effect of interest rate changes has not been significant on the budget deficit.