Page 19 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.79, # 2, 2022, pp. 19-36

ECONOMETRIC ASSESSMENT OF OPTIMAL INTEREST
BURDEN: CASE STUDY FOR AZERBAIJAN

MURAD Y. YUSIFOV

Institute of Control Systems, Azerbaijan National Academy of Sciences (ANAS),
Baku, Azerbaijan, Email: [email protected]
Received: October 14; accepted November 10, 2022; published online December 23, 2022

ABSTRACT:

In this study, the level of interest burden maximizing bank profits and tax revenues
was assessed separately for lockdown and non-lockdown periods by using polynomial
regression. According to the findings of the study, the interest burden that provides
the maximum level of bank profitability for the non-lockdown period was estimated
at 2.9%, and 2.0% for the lockdown period. But the interest burden that provides the
maximum level of tax revenue for the non-lockdown period was estimated at 1.48%,
and 1.63% for the lockdown period in Azerbaijan. Besides that, the interest burden
that provides the minimum level of tax revenue for the non-lockdown period was
found at 2.16%, and 1.87% for the lockdown period. In order to ensure fiscal and
monetary compatibility, it is important to consider the difference between these
interest burdens as far as possible within the framework of optimality.

Key Words: Interest burden, profit of banking sector, polynomial regression,
optimality, tax revenue

JEL Classification: B23, C13, E58, E62, G21

INTRODUCTION
The issue of optimality in the economy determines the rational approach of economic
entities in their economic activities. Optimality allows individuals to place assets
adjusted to their behavioural bias in their investment activities by setting a framework
for a rational approach. However, it is very difficult to ensure a rational approach at
both the macroeconomic and microeconomic levels. This is because economic laws
are not as stable or long-term evolutionary processes as physical laws. Economic
processes are stochastic and change regularly. Behavioural biases of economic entities
that affect economic processes take it away from the optimal level. These behavioural
biases are divided into cognitive and emotional.

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