The Analysis of Government Size Impact on the Underground Economy in Iran: Emphasizing the Role of Government Budget Imbalance

Document Type : Research Paper

Authors

Faculty of Economics, University of Tehran, Tehran, Iran.

Abstract

This study analyzes the impact of government size on the underground economy in Iran with a focus on the role of government budget imbalance. In this study, the Multiple Indicators-Multiple Causes (MIMIC) method was used to estimate the size of the underground economy, which indicates an average of 18.3 percent of this index in Iran's economy. In the present study in addition to the ARDL (symmetric) approach, the NARDL (asymmetric) approach is also uses to examine the relationship between government size and the underground economy. The results of the symmetric estimation indicate that government size has a negative effect on the underground economy; however, this effect is moderated by government budget imbalance. In other words, at higher levels of budget imbalance, the size of the negative effect of government size on the underground economy in Iran becomes less. The asymmetric estimation show that first, The effect of decreases in government size on the underground economy is more than the effect of increases in government size. Second, increase in government budget imbalance reduces the favorable (negative) impact of increases in government size and the unfavorable (positive) impact of decreases in government size on the underground economy. Other findings are that other factors, such as inflation, unemployment, and trade openness, have a positive impact on the underground economy. Also, in recent years, the size of the underground economy in Iran has increased significantly.

Keywords

Main Subjects

References

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Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 59, Issue 2 - Serial Number 147
November 2024
Pages 327-361

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History

  • Receive Date: 19 May 2024
  • Revise Date: 30 September 2024
  • Accept Date: 12 November 2024

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