The Effect of Government Revenues Growth on Inflation and Real Economic Growth in Iran (1959-2007)

The scope and diversity of government activities to achieve economic targets have led to a condition where taxes are now paid more attention and are considered to function as an important economic instrument. The governments can utilize this instrument to financesome part of their expenditures, but due to the Iran's economy’s dependence on oil revenues, tax revenues form only a small fraction of the Iranian government revenues. The present research aims atexamining the effect of tax revenues growth on such macroeconomic indicators as inflation and real economic growth. The role of oilrevenues is also paid attention. This research, as a case study, uses simultaneous equations system to examine the Iranian data of the years 1959-2007. A two-stage least square method was used to estimate the equations. The final form of the model consists of four equations including inflation rate, real economic growth rate, real growth rate of the government revenues and real growth rate of investment equations. Results show that real growth rate of the government tax revenues doesnt have any significant effects on real growth rate of economy but it has significant negative effects on theinflation rate.