Comparative Analysis of The Effects of Financing Government Budget Deficits Through General Murabaha Bills Versus Borrowing From The Banking System on Economic Growth And Inflation Variables

Mohadeseh Aliasgharzadeh, Mohammad Vaez, Mohammad Reza Ghasemi and Abbas Hosseini Ghafar
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Mohadeseh Aliasgharzadeh: Assistant Professor, Department of Economics, shahid Ashrafi Isfahani University, Isfahan, Iran

Quarterly Journal of Applied Theories of Economics, 2025, vol. 12, issue 1, 97-118

Abstract: Various instruments have been designed and issued to compensate for the government budget deficit and to finance both public and private sector companies. Addressing the budget deficit issue and adopting appropriate solutions for its financing, along with creating debt based on sound economic principles, is of great importance. Accordingly, this study compares the effects of two financing methods, issuance of general Murabaha bonds and borrowing from the banking system, on economic growth and inflation. The research model for analyzing growth derives from the Solow-Swan growth theory. Given the interrelationships between variables and the limited issuance period of Murabaha bonds, the Bayesian Vector Autoregression (BVAR) method has been employed. The data used are monthly and cover the period from 2019 to 2022. The results show that the issuance of Murabaha bonds initially leads to a decrease in the economic growth rate, but it increases in the subsequent periods. In contrast, increasing government debt to the banking system results in declining economic growth. The effect of Murabaha bonds on the inflation rate is initially positive but decreases after a few periods. However, the inflationary impact of Murabaha bond issuance is greater than that of government debt to the banking system

Keywords: Financing; Murabaha Bills; Government Debt; Budget deficit; Economic Growth; Inflation (search for similar items in EconPapers)
JEL-codes: E44 H62 O40 P24 (search for similar items in EconPapers)
Date: 2025
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