Effects of International Financial and Energy Sanctions on Iran's Informal Economy

This paper discusses the extent to which sanctions and the informal economy affect the political economy of Iran, and highlights some important transmission channels by which these sanctions affect the Iranian informal economy. The effects of the recent sanctions on Iran's informal economy have been transmitted mainly through the foreign exchange market. This article concludes that despite economic reforms under the Mohammad Khatami government, financial pressures and the foreign exchange market could contribute to an increase in the size of Iran's informal economy in the future. Though the financial and energy sanctions influence Iran's fiscal policies and negatively impact economic growth, a moderately sized informal economy could improve political stability to the country by reducing income inequality.