The Effect of Energy Subsidies on Fiscal Deficits in a Panel of Selected Countries, with Special Reference to Iran

Miry, Soheila; Mehnatfar, Yousef

doi:10.22034/jmek.2024.452904.1125

The Effect of Energy Subsidies on Fiscal Deficits in a Panel of Selected Countries, with Special Reference to Iran

Document Type : Original Article

Authors

soheila miry ¹

Yousef Mehnatfar ²

¹ PhD student in Islamic Economics; Faculty of Economic and Administrative Sciences, University of Mazandaran, Babolsar, Iran.

² Associate Professor, Department of Economics, Faculty of Economic and Administrative Sciences, University of Mazandaran, Babolsar, Iran.

10.22034/jmek.2024.452904.1125

Abstract

Subsidies are economic tools through which governments intervene to achieve specific market goals. However, by distorting prices across economic sectors, they have irreversible effects on the optimal allocation of resources and exacerbate budget deficits. Furthermore, they limit the effectiveness of governments' economic policies in tackling macroeconomic problems such as unemployment and inflation. Consequently, energy carrier subsidies and their impact on the budget deficit are of great importance, particularly in oil-producing nations. The main purpose of this article is to examine the effect of energy carrier subsidies on government budget deficits in selected countries, with a specific emphasis on Iran. For this purpose, annual statistical data for the period 2000 to 2018 were extracted from reputable international sources and the energy balance sheet. To estimate the research model, the econometric panel data approach using the Generalized Method of Moments (GMM) was employed. The findings of this study show that energy carrier subsidies have a positive and significant effect on government budget deficits in the selected countries. Specifically, an increase in these subsidies leads to an intensification of the imbalance between government revenues and expenditures. Additionally, variables such as oil revenue and economic growth rate have a negative relationship, while inflation and tax revenues show a positive relationship with the budget deficit. Based on the results, it is recommended that governments, in order to reduce budget deficits and achieve optimal resource allocation, reform the subsidy structure and replace it with efficient price and guidance policy tools.

Keywords

Energy Carriers Subsidies

Government Expenditures

Government Budget Deficits

Panel Data

Generalized Method of Moments (GMM)

Subjects