Estimation of Seigniorage Laffer Curve in Iran: A Fuzzy C-Means Clustering Framework

There are two sources for governments to raise their revenues. The first is the direct taxation levied on output, and the second is seigniorage. Seigniorage is also known as printing new money and is defined as the value of real resources acquired by the government through its power of sovereignty on its monopoly of printing money. The purpose of this paper is to examine the Laffer curve for Seigniorage in the economy of Iran through data-set collected from the statistical books of the central bank of Iran related to the time period 1979-2010. For this purpose, we use a methodology that is based on the Fuzzy C-Means algorithm that is widely used in the context of pattern recognition, and the Takagi-Sugeno approach which is proper for modeling fuzzy systems. This methodology is exceptionally flexible and provides a computationally tractable method of dealing with non-linear models in high dimensions. Our findings support a standard Laffer curve shape in Iran. In other words, it will be concluded through empirical results that there is a nonlinear relationship between seigniorage and inflation for the economy of Iran in the time period studied in this paper.