The Impact of Uncontrolled Money Supply Growth on Corruption and Its Consequences for Inflation and Income Inequality in Iran

Document Type : RESEARCH PAPER

Authors

1 Ph.D. Candidate, Department of Economics, Faculty of Economics, Management and Social Sciences, University of Shiraz, Iran

2 Professor, Department of Economics, Faculty of Economics, Management and Social Sciences, University of Shiraz, Iran

3 Professor, Department of Economics, Faculty of Economics, Management and Social Sciences, University of Shiraz, Iran Iran

4 Assistant Professor, Department of Economics, Department of Economics, Faculty of Economics, Management and Social Sciences, University of Shiraz, Iran

Abstract

Chronic, excessive growth of the money supply erodes the value of the national currency and creates opportunities for speculation in asset markets. This process can divert resources from productive to unproductive and speculative activities by generating economic rents and fostering corruption. Moreover, financial corruption and inflation resulting from high liquidity mutually reinforce each other, ultimately exacerbating income distribution inequalities. While the bidirectional relationships between corruption and income inequality, as well as the separate linkages between money supply and inflation, have been extensively examined in the economic literature, modeling within a systemic framework that places the feedback loop between money supply growth and corruption at the center of the analysis has received comparatively less attention.This study employs annual data for the period 1984–2023 (Iranian calendar: 1363–1402) and utilizes a simultaneous equations system to investigate these multifaceted relationships. The findings indicate that excessive money supply growth in Iran intensifies corruption by creating economic rents. This growth contributes to higher inflation and deepens income inequality not only directly but also indirectly through its amplification of economic corruption. Furthermore, corruption and inflation exhibit a mutually reinforcing relationship. The results confirm the interdependence of these variables, forming a vicious cycle that has perpetuated double-digit inflation and income inequality in the Iranian economy. The study underscores the need for transparency and auditing in liquidity injection processes and the strengthening of regulatory institutions to break this vicious cycle. The Targeted money supply control and reforms in the government’s financial system are considered essential prerequisites for curbing corruption.

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References

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Stable Economy Journal
Volume 7, Issue 3 - Serial Number 24
October 2026
Pages 77-108

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