This study investigates the macroeconomic determinants of Iran’s budget deficit over the period 1986–2022. The results obtained from the BAS and BACE methods indicate that institutional variables (such as electoral freedom, the democracy index, and the corruption index), fiscal variables (including tax revenues and government expenditures), and exogenous factors (notably international sanctions) consistently appear in models with high posterior probabilities. Moreover, inflation and economic openness were also identified as significant explanatory variables.
The findings of the Jointness analysis further reveal that, in Iran, the relationships among key macro-fiscal variables are predominantly substitutive: government expenditure and tax revenues, as well as tax revenues with sanctions and democracy, tend to substitute for each other, producing reactive and unstable effects on fiscal sustainability. In contrast, complementary and reinforcing interactions were observed between institutional and economic variables—such as democracy and electoral freedom, and between economic openness and electoral freedom—highlighting the crucial role of political institutions and fiscal transparency in restructuring the budget framework. These results underscore the necessity of aligning fiscal policies with institutional reforms and enhancing government accountability to achieve sustainable fiscal discipline.