The Effect of Inflation on Budget Deficit through Tax Income and Expenditure aspect in Iran's Economy

In general, the effect of inflation has different resultsUsing seasonal data over (1981-4- 2000-4): in this paper, the effect of inflation on the budget daeficit from income and expenditure aspects in Iranian economy has been considered. In order to test the inflation effect on tax income and government expenditure the Tanzi and Patinkin hypotheses were used respectively.Results indicate that Tanzi effect acts strongly at long run because of long tax collection lag, less price elasticity tax and high inflation rate. Furthermore, increasing inflation expand the budget deficit by decreasing actual tax revenue.In contrast, the Patinkin effect does not act in long-run because of high price elastisity of government expenditure and high share of current expenditure.Then, inflation expands budget deficit form expenditure side. Thus, inflation expands budget deficit bother the income and expenditure sides in Iran’s economy.