Current Expenditure Stickiness and its Effect on Budget Deficit Persistence in Iran: A Critical Approach Inspired by the Financial Model of the Prophetic Government

Chronic budget deficits, as a structural challenge in the Iranian economy, have persistently threatened the fiscal sustainability of the government. Adopting a distinct analytical perspective, this study traces the roots of this problem to the structural rigidity of the fixed payment system. Accordingly, it introduces the variable payment model observed in the Prophetic government as an alternative theoretical framework for establishing an automatic balance between revenues and expenditures.
The research employs a multi-layered analytical approach, including theoretical analysis, a descriptive examination of data for the period 2000–2024 (1379–1402), and multi-scenario simulations to quantitatively evaluate the effects of expenditure flexibility. Descriptive findings clearly reveal a pronounced asymmetry between volatile revenues and rigid expenditures. However, attempts to establish a stable statistical relationship using advanced econometric models (including ARDL) did not yield significant results due to severe instability and multiple structural breaks in the Iranian economy. This outcome itself highlights the limitations of quantitative econometric analysis in such a volatile context.
In contrast, policy simulation results within a static budgetary framework indicate that introducing flexibility to even a small share (10–30 percent) of rigid expenditures could substantially reduce the budget deficit, particularly during crisis years. The study concludes that although identifying a stable statistical model in Iran’s volatile economic environment is difficult, both theoretical reasoning and computational evidence support a transition toward more flexible payment systems as an important strategy for achieving fiscal sustainability.
Nevertheless, given the static nature of the simulations and the exclusion of recessionary feedback effects from expenditure reductions (the multiplier effect), an important caveat emerges: to avoid adverse impacts on economic growth during downturns, expenditure adjustments should be anchored to a moving average of sustainable revenues rather than volatile annual income. Otherwise, mechanically reducing expenditures may deepen economic recessions.