For decades, Iran has alternated between brief periods of calm and long stretches of macroeconomic instability. Except for the 1960s, no era has been free from high inflation, fiscal imbalance and policy volatility. Despite the presence of competent technocrats who understand the costs of instability, successive governments have failed to translate that understanding into sustained stability. Their main response has been to legislate — to pass laws and regulations that promise to cure the symptoms of disorder rather than its causes.
From budget laws to five-year development plans, the country’s policymaking system has relied on legal instruments as if the mere act of legislation could substitute for coherent economic governance. One prominent example is the Capital Gains Tax Law, enacted as a reaction to soaring asset prices. Yet the inflation driving those prices stems from persistent monetary expansion and fiscal dominance — both rooted in government policy. Instead of addressing these causes, the law effectively penalizes citizens for protecting their savings against inflation.
Another recent initiative, the Central Bank Law, was meant to correct this pattern. It sought to grant the Central Bank independence in monetary policymaking and strengthen its supervisory authority. The law took effect in June 2024 after nearly a decade of drafting and debate. However, macroeconomic data since its implementation suggest that the intended benefits have not materialized. Inflation, which had fallen to around 31 percent before the law’s enforcement, climbed again to 45 percent by late 2025. Liquidity growth and interest rates followed similar upward trends.
The reason is not the law itself but the persistence of fiscal dominance—the political pressure on monetary policy to finance public deficits. As long as the broader policymaking system lacks the political will to restrain spending and tolerate the short-term costs of stabilization, legal reforms cannot produce meaningful change. The Central Bank remains subject to conflicting mandates: controlling inflation on one hand, and supporting growth, employment and even “social justice” on the other. These contradictions create a constant source of political interference and policy inconsistency.
True stability requires more than legislation. It demands an institutional and political consensus that places low inflation and macroeconomic order above short-term populism. Without such a collective commitment, new laws only add complexity to an already tangled legal and regulatory system.
Iran’s experience illustrates a broader truth: macroeconomic discipline is not achieved by writing new statutes but by aligning incentives, building credibility and exercising fiscal restraint. Legal reform can support that process, but it cannot replace it. The country’s challenge, therefore, is not to legislate more, but to govern better — and to recognize that economic stability is ultimately a matter of political will, not legislative abundance.
