The Effects of Fiscal Policies on Macroeconomic Variables in A System Dynamics Model

The aim of this paper, is to develop a system dynamics model for investigating the impact of fiscal policies on macroeconomic variables in Iran. In this study, the effects of different scenarios on variables such as gross domestic product (GDP), investment, monetary base, inflation, and the government budget deficit were investigated, and these scenarios were analyzed to provide practical guidelines. After validating the designed model by comparing the simulated values of the base model with actual data, the results were evaluated under four scenarios. Based on the findings, a 3% increase in other tax rates had a greater impact than an increase in income tax rates and value-added tax (VAT) rates. Furthermore, a 10% reduction in government expenditures had a smaller effect on inflation and the monetary base compared to the VAT and other tax rate scenarios but would lead to an increase in investment and production.