Research Paper
Energy Economics
Heshmatullah Asgari; Ali Moridian
Abstract
Iran's economy has consistently experienced a rise in the budget deficit (BD), which has hindered the country's capacity to see overall economic growth. However, it also constantly deals with uncertainty in the international market. Careful management of the link between these two forms of deficits is ...
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Iran's economy has consistently experienced a rise in the budget deficit (BD), which has hindered the country's capacity to see overall economic growth. However, it also constantly deals with uncertainty in the international market. Careful management of the link between these two forms of deficits is necessary to attain stability and sustainable economic growth. This research has investigated the Dynamic causal relationship between double Current Account Deficits (CAD) and Iran's budget deficit (BD) from 1965 to 2018 using the rolling window (bootstrap) method. Every era of causality is examined, taking into account the structural gaps. The paper's findings support the Mundell-Fleming model by demonstrating that, between 1981 and 1987, the budget deficit (BD) positively impacted the current account deficit. However, between 1975 and 1977, 1998 and 1999, and 2005 and 2013, the country's lack of organized or poorly organized financial markets resulted in the abandonment of the current account deficit, which had a detrimental effect on the country's budget deficit (BD). Furthermore, the findings indicate that the government's budget deficit (BD) was positively and significantly impacted by the Current Account Deficit (CAD) from 1991 to 1992, but negatively and significantly impacted from 1975 to 1976, 1981 to 1985, 1989 to 1970, 2005 to 2006, and 2009 to 2011. Overall, the findings suggest that there is dynamic causation between the twin budget-current account deficits, albeit in distinct directions. This suggests that the Iranian government is unable to address the imbalance in its external sector through budget policy.
