Analysis of the Effect of Oil Rent on Economic Well-being in Iran with an Emphasis on the Underground Economy

In this study, economic well-being and the underground economy were calculated and estimated using the Index of Economic Well-Being (IEWB), and the MIMIC method, respectively. Then, using the ARDL method in linear (symmetric) and non-linear (asymmetric) formats, the effect of oil rent on economic well-being was investigated according to the level of the underground economy over the period 1973 to 2021. The long-run results demonstrate that oil rent has a positive effect on economic well-being in a symmetric model. In an asymmetric form, oil rent has a positive and asymmetric effect on economic well-being, which means that with increases in oil rent, economic well-being boosts, and with its decreases, economic well-being lessens. Also, the impact of increases in oil rent on economic well-being is more than its decreases. Another finding is that the higher size of the underground economy causes a reduction in the favorable effect of increases in oil rent on economic well-being. The inflation rate has a negative effect on economic well-being in both models. According to the results, it is suggested that governments should strengthen the tax system and the National Development Fund during increases in oil rent, so that economic well-being is not damaged when decreases in oil rent.