The role of government governance in the relationship between fiscal deficit and tax policies with economic growth and prosperity index; STAR approach

اقتصاد و توسعه منطقه ای

Articles in Press, Accepted Manuscript, Available Online from 07 May 2025

Document Type: Original Article

DOI: 10.22067/erd.2025.91338.1266

Authors

Ramezan Ali Arshian; Karim Emami^* ; Kambiz peykarjou

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

Abstract

In this study, the threshold effects of the government's governance role in the relationship between fiscal deficit and tax policies with economic growth and prosperity index during the years 1365-1400 and the application of the mild transfer threshold approach (STAR) were investigated. The results of the non-linear part of the model show the existence of a positive relationship between the variables of tax revenues and oil prices with the economic growth and welfare index. Also, the variables of government size, fiscal deficit, exchange rate, and inflation lead to a decrease of 7%, 17%, 25%, and 17% of economic growth and welfare, respectively. Due to the fact that the financial relationship is the main factor in transferring oil price instability to other sectors of the economy, financial discipline is the only wise way to deal with financial deficit and currency and financial instability. For this reason, it is necessary to vaccinate the economy against the instability of oil revenues by disconnecting the government's current expenditures with oil revenues. Also, regarding the way of spending oil revenues, the existing laws regarding saving a part of oil revenues in the National Development Fund should be implemented with more executive guarantee. It is also suggested that the government, by shrinking its body, provides space for the private sector and foreign investment, with the entry of foreign direct investment and the development of financial markets, the government's foreign exchange income will increase, and as a result, with the growth of the government's foreign exchange income, the value of the national currency will also increase, which can be effective in the economic growth and prosperity of the country.

Keywords

Government governance; fiscal deficit; tax policies; economic welfare; threshold approach

References