Investigating the Repercussion of Macroeconomic Variables to Taxes in the Iranian Economy in the Framework of the Dynamic Equilibrium General Equilibrium Model

Document Type : Research Paper

Author

Assistant Professor of Economic, Shahid Bahonar University of Kerman, Kerman, Iran.

10.22103/jdc.2020.15975.1097

Abstract

Objective: The main purpose of this paper is to evaluate the effect of tax shocks on consumption of domestic and imported consumer goods, labor income tax and corporate tax on gross domestic product and inflation in the framework of dynamic stochastic general equilibrium model of open economy based on New-Keynesian economic tenets for Iran. To do this purpose, a dynamic stochastic general equilibrium model has been designed, calibrated and simulated that includes domestic, foreign, monetary, and financial parts.
Method: To investigate the subject, based on the stochastic dynamic general equilibrium model, model includes different parts such as households, firms producing final goods in monopolistic consumption market, pricing with regard to Kalvo price stickiness, firms producing intermediate goods, the combination of government as financial section with central bank as monetary section, and foreign section. By optimization of different parts, the extracted equations are log linearized and some parameters have been calculated and some others have been calibrated and then estimated using the Bayesian method. Furthermore, Hybrid New Keynesian Phillips curve has also extracted for domestic inflation. Also, the function of variants of macroeconomic variables in relation to tax shocks, have been investigated.
Results: The findings of this study indicate that the bases of tax on domestic consumption goods, and imported consumption goods, of income tax payroll, and of corporate tax have small but significant impacts on GDP and inflation. The least contribution in the changes of GDP among the investigated tax bases is attributed to tax on domestic consumption goods. Income tax payroll recorded the least contribution in the changes of inflation.
Conclusion: The results of the present study confirm the low share of taxes in the Iranian economy. Also, considering the effects that the most important current tax bases have on macroeconomic variables, the government's action in providing revenue sources from these tax bases should be such that the activities of economic units face the least disruptive effects and unforeseen changes. In this regard, it is recommended to revise the current method of setting tax rates.

Keywords

References

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History

  • Receive Date: 01 June 2020
  • Revise Date: 17 August 2020
  • Accept Date: 07 September 2020

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