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In this study, to find the relationship between the government budget deficit and trade balance in Iran, a structural macro-econometric model is set up. In the model, government consumption expenditure increased by 20 percent annually during 2001-2010, so the government budget deficit increased relative to the baseline. The financing methods of budget deficit and relevant effects on trade balance were analyzed in 4 options. The results indicate that government budget deficit increases by adopting expansionary fiscal policy in all options. If the budget deficit is financed by borrowing from the central bank (the first option), it will raise the monetary base and finally worsen the trade balance and non-oil trade balance compared to the baseline.  If the budget deficit is financed by selling participation bonds to the public (the second option), it will reduce aggregate demand and finally improve the trade balance and non-oil trade balance compared to the baseline. If direct taxes and government spending are increased by the same amount (the third option), private consumption will decrease; and trade balance and non-oil trade balance will be deteriorated compared to the baseline. Finally, if the budget deficit is financed by the withdrawal of foreign currency reserves (the fourth option), oil revenues will increase, as a result the trade balance will be improved and the non-oil trade balance will be exacerbated compared to the baseline.  

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The relationship between exchange rate changes and trade balance has always been one of the major issues in theoretical literature and policy circles. A new approach to theoretical literature and empirical work suggest that the interaction of these two variables depends on a number of issues, including how each country's export and import markets interact, and the degree to which exports of goods are dependent on imports. For this purpose, in the paper, the relationship between exchange rate and trade balance in the Iranian economy is examined by considering the crucial role of Intra –industry trade in the form of smooth transition regression model for the period 2001: 4 to 2018: 4. The results showed that the coefficient of effect of the exchange rate on the trade balance in each period is affected by the intra--industry index, so that the lower the index, the less the effect of the exchange rate increase on the trade balance, and as this index improves, the impact is greater. This means that the positive effects of money devaluation on the trade balance can be benefited when the competitiveness of domestic products with similar foreign goods in each sector increases.