Analysis of the Effect of Government Budget Imbalance on Economic Welfare in Iran

The budget Imbalance can lead to the reduction of social and economic welfare programs such as healthcare, education and social security. This can negatively affect the quality of life of citizens and can lead to an increase in poverty and inequality. In this regard, the aim of the present study is to investigate the role of budget imbalance on economic welfare in Iran for the period of 1978-2021. For this purpose, the research model has been estimated using the non-linear (asymmetric) Autoregressive Distributed lag method in two models. Also, IEWB comprehensive index has been used to calculate economic welfare. The movement trend of the economic welfare index shows that it fluctuated during the period under review; so that the average welfare index in the first plan has decreased compared to the previous period; While it has had an upward trend in the following periods and has an average of 128.89; Also, the trend of total Imbalance and operating and capital Imbalance has a fluctuating trend. The long-term results in the first model indicate that a decrease in the budget balance deficit has an inverse and significant effect on economic welfare, and an increase in the budget Imbalance does not have a significant effect on economic welfare. In the second model, the long-term results indicate that the increase and decrease in the capital Imbalance has direct effects on welfare. An increase in the operating Imbalance has an inverse effect on welfare, and a decrease in the operating Imbalance does not have a significant effect on welfare. Also, in both models, per capita income and economic growth have a direct and significant effect on welfare. According to the results, it is suggested that the government should adopt similar policies in the financial foundations to improve the security of the society, create the necessary infrastructure to maintain the total income tax, eliminate non-targeted tax exemptions and credit priorities in order to reduce the imbalance budget. It is also recommended that the government focus more on increasing the share of the capital component of the public budget and reduce the operational imbalance of the budget in the long-run.