Fiscal deficit and tax policies and their impact on economic indicators with regard to the government's sovereign role; The SVAR approach

اقتصاد پولی مالی

Volume 31, Issue 2 - Serial Number 28, September 2025

Document Type: Original Article

DOI: 10.22067/mfe.2024.84799.1336

Authors

Ramezan Ali Arshian¹; Karim Emami^{* 2}; kambiz peykarjou²

¹Administration of Economic Affairs and Finance

²Department of Economics, Faculty of Management and Economics, Islamic Azad University, Science and Research Unit

Abstract

The present study explains the response of the economic welfare index to fiscal deficit and tax policies despite the government's sovereign role for the years 1365-1400. For this purpose, using the structural vector autoregression model (SVAR), the effect of fiscal deficit, government tax policies and other indicators affecting economic well-being were investigated. The findings showed that an impulse from oil price and exchange rate decreases economic welfare by 26 and 15 percent. The response of economic well-being to the impulse from the area of net tax income and production growth is also close to 11 and 32 percent. The results of instantaneous reaction functions for the model show that the response of economic well-being to the impulses from government governance and tax policies from the upper limit to two periods of downward trend and then at the lower limit to two upward periods and finally in the long term is damped to zero. The main channel of influencing economic well-being is done through the optimal size of the government, governance indicators and financial policies. Therefore, the way of financial market liberalization, weak management of the financial system and the lack of formation of coherent financial markets and the benefit of regulations in the country can be seen as the reasons for reducing the efficiency of investment through sub-optimal allocation of resources in the country, which requires more attention and effort in the country.

Keywords

economic welfare; oil; government fiscal deficit; tax policies; structural vector autoregression

References