Estimating the Share of Economic Growth in the Difference of Taxes (Decomposition Models Approach)

Document Type : Original Article

Authors

1 Ph.D. in Economics of Razi University; Economic expert of General Department of Economic Affairs and Finance of Kermanshah Province, Kermanshah, Iran.

2 M.A. Student of Economic, Department of Economic, Faculty of Entrepreneurship and Economics, Razi University, Kermanshah, Iran.

Abstract

One of the important reasons for the vulnerability of Iran's economy to sanctions is the instability of government revenues. For this reason, the government's attention towards taxes as a sustainable income has increased, and based on statistical evidence, the share of taxes in the gross domestic product in the provinces of Iran has increased from 2.62% in 2012 to 13.06% in 2020. The factor of stability of government revenues is economic growth, and the tax on economic growth has high stability, in this regard, this research answers the question whether the difference in economic growth is the reason for the difference in taxes in the provinces of Iran. The results of Oaxaca-Blinder analysis show that in income tax, value added tax and total tax, respectively, 90, 49 and 64% of the tax gap can be explained by the difference in the economic growth of the provinces. Therefore, the improvement in online systems for the development of economic activities can increase the share of economic growth in the difference of tax revenues. In addition, the results show that by adding the variable of indus‌trialization and the service sector in separate models, the contribution of explainable factors in the tax difference has been increased compared to the contribution of the service sector, and in other words, indus‌try has a synergis‌tic property in tax acquisition, in corporate taxation, direct tax and value added tax, with the increase in the share of indus‌try, the tax gap between the provinces will have an explainable feature, in other words, this issue is caused by the high value added in the indus‌try sector and also the transparency of its activities in the economy. But the increase in the share of services in wealth tax and income tax has a relatively high contribution in explaining the tax gap, so that every share of the share of the service sector in the economy increases, the amount of tax revenue increases.

Keywords

References

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Public Sector Economics Studies
Volume 2, Issue 1
May 2023
Pages 59-74

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History

  • Receive Date: 12 March 2023
  • Revise Date: 04 May 2023
  • Accept Date: 20 May 2023

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