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By a transient glance at the Iranian government budget, it is found that in almost all years, a large amount of the Iranian government budget deficit is provided by issuing money. Money issuing through inflation and real economic growth, leads to increased revenue for the government. Through increasing the general level of prices and decreasing the purchasing power it leads to the concept of “inflation tax” which is taken from people without their awareness. By real economic growth, more real balance will be demanded for transaction of additional production. In such a condition, the government by paying credit money takes the possession of the goods and services which have inherent value. Regarding the importance of growth in macroeconomic discussions, in this study, the relationship between seigniorage and per capita income growth by using econometrics models has been analyzed. Using time series data for 1966 – 2007 the econometric models have been estimated through CLS approach and threshold level of seigniorage is assessed. The results show that seigniorage has meaningful and negative effect on the economic growth at more than 3.5% but its effect on economic growth less than 3.5% is neutral.

Keywords: economic growth, Seigniorage, Budget deficit, Inflationary tax, Threshold level, Government JEL Classification: H11, H62

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