In recent decades, budget imbalance has become a significant economic challenge for many countries. Although some studies have examined the distributive and welfare effects of fiscal policy and subsidies, they have not sufficiently emphasized the financial consequences and budget deficits. This study investigates the impact of shocks to subsidy expenditures and fiscal policy instruments on the government budget imbalance in Iran during the period 1980 to 2022. For this purpose, the vector autoregressive (VAR) approach and impulse response functions were employed. The results indicate that a shock to government subsidy expenditures generates a positive response in budget imbalance in the short run; however, this effect gradually diminishes in the long run. The impulse response functions, which explain the effects of shocks to variables such as government size and tax revenues as fiscal policy tools, as well as oil rent as a control variable, on budget imbalance, confirm that the response of budget imbalance to a positive shock in government size and oil rent is positive. In contrast, a shock from tax revenues initially has a positive effect on the government budget imbalance up to the third period, but subsequently, its effect turns negative. Based on the findings of this study, strengthening sustainable revenue bases and revising the subsidy system play a crucial role in enhancing fiscal sustainability and reducing budget imbalance for the government.