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

Zeinab Baradaran Khanian (), Hossein Asgharpur (), Hossein Panahi () and Alireza Kazerooni ()
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Zeinab Baradaran Khanian: M.A. in Economics, University of Tabriz
Hossein Panahi: Associate Professor of Economics, University of Tabriz
Alireza Kazerooni: Professor of Economics, University of Tabriz

Quarterly Journal of Applied Theories of Economics, 2017, vol. 4, issue 3, 169-194

Abstract: 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 re-sampling (bootstrap), the results of quantile regression are confirmed.

Keywords: Budget deficit; Inflation; Non-linear relationship; Quantile regression; Bootstrap (search for similar items in EconPapers)
JEL-codes: C22 E31 E62 (search for similar items in EconPapers)
Date: 2017
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