Petroleum University of Technology Petroleum Business Review 2645-4726 8 2 2024 04 01 Oil Revenue, Government Size, and Inflation in Iran: A Markov Switching Approach 30 42 182496 10.22050/pbr.2023.400554.1303 EN Haniyeh Sedaghat Kalmarzi Department of Economics, Razi University, Kermanshah, Iran Mohammad Hassan Fotros Economics Department, Bu-Ali Sina University, Hamedan, Iran 0000-0001-6859-5854 Journal Article 2023 06 10 The Iranian economy is intensely affected by the size of the government and oil income. Oil incomes might influence the relationship between inflation and government size since financing the budget in Iran is based to a significant degree on oil revenues. Due to the significance of government size and oil income on the price level, the oil revenue-government size-inflation nexus in Iran during the period 1991-2021 is considered. Estimation results of a Markov switching model recommend that government size incorporates a significant positive affect on inflation. Moreover, the growth of oil income is found to have a significant negative affect on the inflation. Based on the findings, it appears that there are two regimes being considered: Regime 1, which represents a high inflation regime, and Regime 2, which represents a low inflation regime. Our findings suggest that once in the low inflation regime (Regime 2), there is a moderate chance of remaining in that state. However, if initially in the high inflation regime (Regime 1), there is a higher probability of staying in that state and a lower probability of transitioning to the low inflation regime. https://pbr.put.ac.ir/article_182496_5e472cbc2f2a3cecd16a94e75fcdd845.pdf