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

Inflation affects budget deficit on both revenue and expenditur sides. Understanding the effect of inflation on the government's budget deficit could be some what appropriate conditions to control inflation and reduce the deficit. Using of seasonal data over the period of 1991:2-2015:1, this study investigates the effectof inflation on iran's budget deficit. To do so, the research model has been estimated in different percentiles using a quantile regression. The results indicate that, as inflation rises, the budget deficitis decreased. On the other hand Patinkins effect dominants of Tanzis effect. In fact, the result shows that although inflationreduces the real expense and revenues of government, but it is reducing government expense more than government revenues and as a result increasing inflation caused toreducing ofthe budget deficit. Due to the different levels of inflation in iran, there is a non-linear relationship between inflation and budget deficits, because as the results of the research show, in primary percentiles, the effect of inflation on the deficit is more than on intermediate percentiles.with the implementation of resampling (bootstrap) as the results estimation quantile regression of the model was confirmed.