Effects of oil revenues abundance on economic decision making: Factors involved and and private sector share in Iran's economy

Oil revenues abundance provides the necessary cash for implementing economic programs. However, it has several negative consequences on various economic sectors and institutions as well. One of the most important possible outcomes of oil revenues abundance is considerable disturbances in the economic decision-making system. Occurrence of such disturbances distorts decisions on saving and investment, size and structure of the government budget, budget deficit and deviation of trade policies from optimal conditions. Thereby, government’s share of the total economy will rise steadily, and share of the private sector will shrink in turn. In this study, using a general simultaneous equations model and the data on Iran’s economy within the period of 1363-1390, in addition to determining the origins and clarifying the structure of such effects, suitable remedial measures are proposed. According to the findings of the study, the most appropriate policy is the one that prevents transmitting of oil revenue fluctuations to the economy while saving A/M benefits for that.