Modeling Causal Relationships of Government Revenues and Budget Deficits with a System Dynamics Approach

Abstract

In macroeconomics, the government is recognized as a key player in influencing economic and social variables. This research examines the effects of taxation on government revenues and its relationship with budget deficits. Given the importance of taxes as a primary source of revenue for governments and the need for diversification in revenue sources, analyzing the impacts of taxation on economic growth and stability is essential. The findings of this study indicate that tax policies can have significant effects on the economic behavior of individuals and firms. An increase in tax rates may reduce the incentive for investment and production; however, it can simultaneously generate greater tax revenues for the government, which can help cover public expenditures and reduce budget deficits. This research employs dynamic system models to analyze the complex relationships between taxation, government revenues, and budget deficits, identifying long-term patterns in this context. The results of this study can assist policymakers in making optimal decisions regarding tax collection and budget deficit management. Additionally, the investigation of strategies to improve the economic conditions of countries and establish economic stability in times of crisis is also addressed in this research. Overall, this study highlights the significance of taxation as an effective tool for achieving economic and social objectives.