Budget, Rent, and Nothing Else!!

The main function of the budget in a rentier economy relates to its two effects: the taxation effect and the spending effect. The taxation effect refers to the exemptions and tax evasion that occur within a rentier economy. Therefore, the share of tax revenue in the total income of a rentier government budget is very limited. The other effect, the spending effect, relates to the distribution of financial resources among institutions that support the regime, such as repressive institutions or state religious and political bodies. In this context, the government can conceal widespread unemployment by injecting oil revenues into state or quasi-state institutions and creating false employment. With the expansion of bureaucracy, although government supporters can obtain jobs and use fixed pensions to cover part of their living expenses, the regime can sustain its - illegitimate - authority with public resources. A significant portion of oil revenues in the current conditions of Iran, according to government officials, is spent on this extensive bureaucracy. Regarding the first effect, the taxation effect, Yaqoub Mazraeli, the director general of tax affairs in West Azerbaijan, states: "In Iran, according to the laws, nearly 40 percent of the economy is exempt from paying taxes." He also added that "tax evasion in Iran is close to 30 percent, meaning that there is tax evasion equal to 30 percent of tax revenues in the country." Part of the tax evasion is also related to the opaque and informal sector of the economy. Various factors explain this limited share of taxes in the Iranian economy, some of which are economic, some political, managerial, and even some social and cultural. From an economic perspective, a significant portion of the Iranian economy is opaque and rentier, with numerous economic, political, and religious institutions utilizing national common resources while simultaneously enjoying tax exemption. Among these institutions are the economic entities of the Islamic Revolutionary Guard Corps and the Astan Quds Razavi, which are rentier institutions directly overseen by the Supreme Leader and are exempt from taxes but simultaneously benefit from tax evasion. The combination of the taxation effect (exemptions and tax evasion) and the spending effect of the budget (generosity in allocating and consuming materials to rentier institutions) leads to a government budget deficit. The most important consequence of the budget deficit is the economic imbalance between the real and monetary sectors, which manifests itself in everyday life as inflation. However, the increase in inflation does not remain at this level, as it also exacerbates the depreciation of the national currency. Therefore, it can be said that the distribution of rent within the budget is one of the significant reasons for the depreciation of the national currency. Moreover, with a budget deficit, the government cannot complete or finalize infrastructure development projects. Insufficient economic growth and the stabilization of unemployment at the current high levels are also other consequences of the budget deficit. Comparing the oil-rent economy of countries like Iran with the economies of Norway and Canada, which are developed countries that also export oil but are not rentier, raises the question of whether the rentierization of oil-dependent economies is inevitable. In response, it should be said that rentierization is not an inevitable process but depends on specific economic-political-social contexts and the way policies are formulated and financial resources derived from oil revenues are utilized. Therefore, a rentier economy typically has the potential for development in a specific economic environment characterized by features such as exogeneity (reliance on oil revenue), inward-looking (inability to participate in global markets), import dependency, lack of endogenous investment, deficiencies in the productive sector, unequal distribution of income, goods, and services, widespread unemployment, and poverty. However, these economic factors, while necessary conditions for the emergence of a rentier economy, are not sufficient conditions. Therefore, they require complementary political, cultural, and social factors. The most important political factors that can enable the acceptance of rent in connection with economic factors include a political structure manifested in the concentration of power and despotism, lack of accountability of power institutions, deficiencies in supervisory institutions, and lack of political participation. Some cultural and social factors, alongside economic and political factors, also play a role in the rentierization process, including anti-modernism, fatalism, ethnic conflicts, low living standards, inappropriate demographic structures, widespread illiteracy, and finally, the weakness of institutions producing empirical sciences. A rentier economy is usually also not in a favorable technological position because its traditional technology is inefficient and unprofitable and is easily overtaken by new technology. To address the problems of a rentier economy, models of "sustainable and balanced growth," "sustainable development," "integrated development," and "human development" have been proposed by research institutions, which do not find a basis in a clerical economy reliant on oil distribution.