The Impact of Sticky Current Expenditures on the Persistence of Budget Deficit in the Iranian Economy (A Critical Analysis Inspired by the Financial Model of the Prophet's Government)

Chronic budget deficits, as a structural challenge within the Iranian economy, persistently threaten the government's fiscal sustainability. Adopting a distinct approach, this study traces the root of this dilemma to the structural rigidity of the fixed payment system. Consequently, it introduces the variable payment model observed in the Prophetic government as an alternative theoretical framework to establish an automatic balance between revenue and expenditure. The research methodology employs a multi-faceted analytical approach, encompassing theoretical analysis, a descriptive examination of data from 2000–2024 (1379–1402), and a multi-scenario simulation to quantitatively assess the impact of expenditure flexibility. Descriptive findings clearly confirm a severe asymmetry between volatile revenues and rigid expenditures. However, attempts to establish a stable statistical relationship using advanced econometric models (including ARDL) failed to yield significant results due to severe instability and multiple structural breaks in the Iranian economy. This, in itself, constitutes a significant finding regarding the limitations of quantitative analysis during this period. Conversely, policy simulation results, within the framework of a static budgetary analysis, demonstrated that introducing flexibility to merely a small fraction (10% to 30%) of rigid expenditures could significantly reduce the budget deficit, particularly during crisis years. The study concludes that while identifying a stable statistical model in Iran’s volatile economy is challenging, theoretical and computational evidence support the transition toward flexible payment systems as a key strategy for achieving fiscal sustainability. However, given the static nature of the simulation and the exclusion of the recessionary feedback effects of expenditure cuts (the multiplier effect), the results emphasize a crucial caveat: to prevent negative consequences on economic growth during recessions, expenditure fluctuations must be anchored to a "moving average of sustainable revenues" rather than volatile annual income. Otherwise, a mechanical reduction in expenditures could come at the cost of deepening the recession.