In general, the effect of inflation on budget deficit is ambiguous and according to countries situation, it has different results. In his paper, the effect of inflation on the budget deficit from income and expenditure aspects in Iran economy by using seasonal data over (1360:3-1379:4) has been considered. In order to test of inflation effect on tax income and government expenditure was used Tanzi and Patirikin hypotheses respectively.
Results indicate that Tanzi effect acts strongly at long run because of long tax collection lag, less price elasticity tax and high inflation rate. Furthermore, increasing inflation expand the budget deficit by decreasing actual tax revenue. In contrast, the patinkin effect does not acts in long-run because of high price elasticity of government expenditure and high share of current expenditure. Then, inflation expands budget deficit form expenditure side. Thus, inflation expands budget deficit both of income and expenditure sides in Iran economy.