Inflation Tax and Economic Growth in Iran

Transcription

1 J. Basic. Appl. Sci. Res., ( 7-6,, TexRoad Publicaion ISSN 9- Journal of Basic and Applied Scienific Research Inflaion Tax and Economic Growh in Iran Ahmad Jafari Samimi; Reza Moghadassi; Khosro Azizi and Amir Varsanjvar Ahmad Jafari Samimi; Khosro Azizi and Amir Varsanjvar are respecively professor of Economics; Assisan professor of Economics and M.A. suden in Economics a Islamic Azad Universiy, Firoozkooh Branch, Firoozkooh, Iran Reza Moghadassi is assisan professor of Agriculural Economics, a Science and Research Branch, Islamic Azad Universiy, Tehran, Iran ABSTRACT In public finance governmens may finance heir budge deficis hrough borrowing from cenral banks. This mehod of financing called seigniorage consiss of wo pars. One par is change in money necessary for economic growh.this par is occurred even when inflaion is zero. However, he second par called inflaion ax is money creaion hrough Inflaion which reduces he real money balances.i acs like a ax by reducing he purchasing power of he money income. The purpose of his paper is o analyze he effec of inflaion ax on economic growh in Iran during Our findings based on esimaed regression models indicae ha here is a negaive and significance relaionship beween Inflaion ax and economic growh in Iran. Therefore, i is suggesed ha governmen o concenrae on non-inflaionary mehods of financing governmen expendiures hrough ax reforms or public borrowing. INTRODUCTION Cenral banks ' exclusive righ o issue currency gives hem privileged access o seiogniorage, effecively making hem unregulaed monopolies. In he pas, he siphoning off of seigniorage o governmens (hrough quasi-fiscal expendiures, profi ransfers, subsidized financing raised familiar issues of fiscal dominance and inflaionary finance. In recen years, subsanial effors have been made o weed ou hese linkages and enhance cenral banks ' independence, ensuring in paricular ha hey are well capialized, remain financially srong, and are well proeced from pressures o appropriae heir resources o no core uses, including for fiscal ( or quasi-fiscal purposes. Cenral banks ' charers have been reformed, direc financing o governmens prohibied and quasi-fiscal expendiures eliminaed especially in developed counries. However, keeping seigniorage inside cenral banks and he reliance of governmen on cenral bank makes seigniorage an easy money (cake if you like in mos developing counries experiencing a very low degree of independency. The purpose of his aricle is o invesigae he impac of inflaion ax on economic growh of Iran as an example of a developing counry. The paper organized as follows. Secion II describes he model specificaion. Secions III uses differen definiion for inflaion ax and esimae he regression models under differen scenarios. Finally Secion IV summarizes our findings and concluding remarks. II.. Model Specificaion Economic growh is one of he subsanial problems in he developing counries. There are many models o analyze he impac or facors deermining economic growh. As demonsraed by Leamer (98; Barro (99 and Levine& Renel (99, here is no public model o economic growh. Levine& Renel proposed he following model which have been used laer in many sudies. (see for example, Hoover and eall ; Sala-i- Marin 997. *Corresponding Auhor: Ahmad Jafari Samimi. jafarisa@yahoo.com 7

2 Ahmad Jafari Samimi and Amir Varsanj, Y B I B i m M B Z U z Where Y sand for he rae of growh of gross domesic produc, and I is he se of variables always included in he regression, M is he variable of ineres,and Z is a subse of imporan independen variables ha used in pas sudies.based on above discussion in his sudy we use he following model: L IY Where is he rae of growh of gross domesic produc, IT L is he rae of growh of labor, is he rae of growh of expor, GY is he raio of governmen expendiures o gross domesic produc, IY is he raio of he aggregae invesmen o, and IT is our ineres variable namely, inflaion ax. III. Model Esimaion under differen scenarios ITOF L IY In he above model ITOF is inflaion ax based on Friedman definiion ha is: M R ( P Where rae of growh of money, P is is prices public level, M is amoun of nominal money. The esimaed regression model under above scenario is: (figures in parenhesis are -saisics. = L GY +.89 IY ٧ ٦٣ - E_ ITOF ( (.6888 (.6676 (.7 (.6 (-. R. R. 99 D. W. F. 79 As seen from he esimaed regression here is a negaive bu insignificance relaionship beween inflaion ax and economic growh. ITOFI L IY In he above model ITOF is inflaion ax based on Fischer definiion ha is: H Where H changes of base money are, is gross naional produc. The esimaed regression model under above scenario is: =.9 -. L GY IY ITOFI (.78 (-.87 (.89 (-.98 (.767 (-.99 R.79 R. 669 D. W F. (Figures in parenhesis are -saisics. As seen from he esimaed regression here is negaive and significance relaionship beween inflaion ax and economic growh. 8

3 J. Basic Appl. Sci. Res., (: 7-6, L IY ITOB In he above model ITOB is inflaion ax based on firs Inernaional bank definiion ha is: H ( Where H average of moneary base is, is gross naional produc and is rae of inflaion. The esimaed regression model under above scenario is: = L IY -.9 ITOIB (.696 (-.8 (. (-.79 (.78 ( R.667 R. 66 D. W. 97 F (Figures in parenhesis are -saisics. As seen from he esimaed regression here is negaive and significance relaionship beween inflaion ax and economic growh. L IY ITOIB In he above model ITOB is inflaion ax based on second Inernaional moneary Fund definiion ha is: RB( Where RB average of bank reserve on cenral bank is, is gross naional produc and is rae of inflaion. The esimaed regression model under above scenario is: = L IY -.78 ITOB ( (.779 (.7 (.9888 (.9 ( R.669 R. 67 D. W. 87 F (Figures in parenhesis are -saisics. As seen from he esimaed regression here is negaive and significance relaionship beween inflaion ax and economic growh. L IY ITOIM In he above model ITOIMF is inflaion ax based on hird Inernaional moneary fund definiion ha is: H R Where is rae of inflaion, H is money base and is gross naional domesic. The esimaed regression model under above scenario is: = L GY IY -.97 ITOIMF (. (-.889 (.69 (-.8 (.76 ( R.6 R. 6 D. W. 869 F (Figures in parenhesis are -saisics. As seen from he esimaed regression here is negaive and significance relaionship beween inflaion ax and economic growh. 9

4 Ahmad Jafari Samimi and Amir Varsanj, GD P 6 L GY IY ITOIMF In he above model ITOIMF is inflaion ax based on fourh Inernaional moneary fund definiion ha is: H R E Where rae of inflaion is, H is money base and E is governmen expendiures. The esimaed regression model under above scenario is: = L IY -. ITOIMF (.76 (.898 (.6 (.98 (.887 (-.679 R.966 R. 88 D. W F (Figures in parenhesis are -saisics. As seen from he esimaed regression here is negaive and significance relaionship beween inflaion ax and economic growh. Figure ( Inflaion ax in Iran under differen scenarios ITOF ITOIMF ITOFI ITOIMF ITOIMF ITOIMF Source: Cenral bank of Iran and auhors calculaions. 6

5 J. Basic Appl. Sci. Res., (: 7-6, IV. Findings and Concluding Remarks The purpose of his paper was o invesigae he relaionship beween inflaion ax and economic growh in Iran as an example of developing counries wih a low degree of cenral bank independence. As seen from previous secion our findings based on differen definiions and scenarios o measure inflaion ax all suppor he derimenal impac of inflaion ax on economic growh in Iran. Therefore, i is suggesed ha governmen o concenrae on non-inflaionary mehods of financing governmen expendiures hrough ax reforms or public borrowing. The inroducion of he las year value added ax in he counry and is developmen wih a broad and relaively higher rae han he currenly percen can be considered as sound policy in his regard. REFERENCES Alpers DL, van Vuuren BJ, Arcander P, Robinson TJ,. Populaion geneics of he roan anelope (Hipporagus equines wih suggesions for conservaion. Mol. Ecol.,, Barro, R. 99. " Economic Growh in a Cross Secion of Counries " Quarerly Journal of Economic, No.,PP: 7- Cenral Bank of Iran, 9. Saisical Yearbook. Tehran, Iran. See also Gujrai, D.. "Basic Economerics h Ediions, Ciy Universiy of New York. Gorgen Drund, Hansen. And Rowsvia, M King. 7. " How o Cu Seigniorage Cake ino Fair Shares in an Enlarged EMU " JCMS 7 Volume. Number. pp Hoover, K.D and S. Perez,. Truh and Robusness in Cross-Counry Growh Regressions, Oxford Bullein of Economic and Saisics, 66, pp Ize, A. 7. " Spending Seigniorage : Do Cenral Banks Have a Governance Problem? " IMF Saff Papers Vol., No.. Levine, R. and Renel, D " A Sensiiviy Analysis of Cross-Counry Growh Regression " The American Economic Review, Vol. 8. No. Varsanjvar, A. 9. " The Impac of Inflaion Tax on Economic Growh in Iran during : 97-6 " M.A disseraion in Economics, Islamic Azad Universiy, Firoozkoh Branch, Firoozkoh, Iran. Sala-i-Marin I Have jus run wo million regressions', American Economic Review, vol 87, pp Samimi, A. And Shamkhal, A " Analyzing he Imporan facors Deermining Inflaion ax in Iran, Journal of Economic Research, Tehran Universiy, n..pp.-6. 6