Assessing the Role of Various Factors Causing Budget Deficit in Iran

The government plays a crucial role in running the country’s affairs in some countries like Iran where the government is in charge of many civil activities and medical services. To fulfill its duties, the government needs budget, but may face budget deficit when revenues projected in the budget bill are not met or expenses exceed expectations. The main subject of this paper is to determine how such factors as subsidies, inflation, tax revenues, oil revenues, state expenses, economic growth, wars, elections, unemployment and population growth cause budget deficit. These factors have been chosen on the basis of Keynesian theory as well as optimal financial theory, random borrowing theory, and general selection theory. The present study defines budget deficit as the difference between government’s revenues and expenses, which is then entered into the model as a dependent variable. To test the impact of these variables, data belonging to 1979-2008 period have been used and “minimum ordinary squares” method has been applied to test the impact of these variables on budget deficit. The findings show that oil revenues, tax revenues, and economic growth have negative impact on budget deficit while subsidies and general expenses have positive effect on it.