The Relationship between the Government Expenditures and Revenues in the Long Run a Case Study of Iran

Abstract

This study focuses the relationship between the government revenues and current expenditures in long run in Iran Country covering data 1986 2110. The research uses the annual time series data which is obtained from the website of Central Bank. The OLS method is used to estimate the liner regression to show the relationship between these variables. EVIEWS 8 and SPSS software is applied to do this survey. This paper explains the relationship between government current expenditures and revenues of taxes and oil in the long run. The results of the research state in the long run during the years of the study the coefficients of the oil revenue and the tax revenue are 0.025 and -2.32 respectively. Hence the oil revenue in the long run is one of the main factors to make a decision by the government who determine its current expenditure level. The decision makers in Iran can use the results of this study to make better decisions for its budget planning. I. Introduction To take a good decision and to improve their societies, the governments need to design the budget. To do its functions a government uses budget as a planning and financial tool. There is a budget deficit while the government revenues are less than the government expenditures. Vice versa, when the government expenditures less than its revenues it is said that the government has budget surplus. There are always the budget deficit all of years during all of years of this study. In other words, the budget deficit is a characteristic of Iran economics. The budget deficit is determined by calculation of the difference between government expenditures and revenues. Some time the governments to reduce the unemployment rate at their societies use the budget deficit policy but having the budget deficit in the long period not only is a policy but also is a problem for society that it needs to solve. To solve this problem the government should reduce its expenditures or it should increase its revenues resources. The budget revenue resources should be stationary and they must have the lowest fluctuations. Strongly dependent budget with the production of a goods shows the government have to change its expenditures or revenues. To achieve these aims the government should know the relationship between government revenues and expenditures. It has been observed that in some cases revenue increase or expenditures reduction affect on its corresponding variable and makes the adopted policy ineffective. So before to make a decision about reducing of the expenditure or increasing revenues it is important to know the amount of dependences of those variables that affect on the government expenditures. One of the most important topics which have not been done enough research is the relationship between the government revenues and the expenditures especially in the long run. To obtain the appropriate financial policy to reduce or remove budget deficit it is necessary to find the relationship between government revenues and expenditures. In fact it is very important that the government informs the budget how much is affected from each of the revenues and which one of the revenues is the most effective. Before any decision on how to reduce or remove the budget deficit the relationship between revenues and expenditure should be estimate. The government expenditures even have increased in some the years its revenues have declined in Iran you can see the following graph: