Analyzing the Relationship between Budget Deficit, Current Account Deficit, and Government Debt Sustainability

  • Michael Reed University of Kentucky,
  • Reza Najarzadeh Tarbiat Modares University,
  • Seyedeh Zohreh Sadati Tarbiat Modares University
Keywords: Budget Deficit, Current Account Deficit, Government Debt Sustainability, Iranian Economy, Vector Auto Regression Model (VAR)

Abstract

The main purpose of this study is to determine the dynamic relationships between budget deficit, current account deficit, and government debt sustainability during 1974-2015 in the Iranian economy. We used a VAR model with Impulse Functions and Variance Decomposition in our dynamic analysis. The results show that there is a long-term stable relationship among the variables of the model suggesting that to improve the government debt sustainability it has to reduce the budget deficit and current account deficit. Since Iran's dependence on oil revenues is the underlying cause of the dependence of the variables on each other, the government needs to reduce the dependence of the current account and the state budget on oil revenues to reduce both types of deficits and government debt sustainability.

Metrics

Metrics Loading ...
Published
2019-12-28
How to Cite
Reed, M., Najarzadeh, R., & Sadati, S. Z. (2019). Analyzing the Relationship between Budget Deficit, Current Account Deficit, and Government Debt Sustainability. Journal of WEI Business and Economics, 8(1), 20-31. https://doi.org/10.36739/jweibe.2019.v8.i1.15