The effect of tax structure on consumption expenditure in Iran's economy

Document Type : Original Article

Authors

1 PhD in Economics, Razi University, Kermanshah

2 Associate Professor in Economics, Razi university, Kermanshah

3 Associate Professor in Economics, Razi University, Kermanshah

Abstract

Abstract:

In Iran's economy, taxes are the most important and highest source of government income from public sources in the public budget, so that about two-thirds of the government's general income from the public budget are taxes. The structure of taxes consists of five types of taxes, which are collected in the form of direct taxes and indirect taxes, and its amount is predicted and approved in the annual budget laws. In this article, based on the time series in the last 50 years from 1971-2020, the effect of each type of tax on consumption expenditure has been investigated using the dynamic model Auto-Regressive Distributed Lag (ARDL) in Iran. The results of the research indicate that in the short term, each unit change in the tax on consumption of goods and services and imports reduces the consumption expenditure by -1.38 and -2.9 units with an immediate negative effect. Also, in the short term, each unit of personal income tax will reduce consumption expenses by more than -7 units. However, income tax of legal persons and wealth tax have a positive effect on consumption in both time periods. In addition, gross domestic product and gross fixed capital formation also have a positive effect on consumption and consumer spending in the short and long term,and consumption has a positive effect from the first lag, but it has a negative effect in the second and third lag. In addition, it shows the ecm pattern or error correction coefficient. If in each period moving towards balance is followed by the error of 100, the imbalance error is adjusted to -/26 in the next period and tends to its equilibrium value in a spiral manner by correcting the error.

Keywords

Main Subjects

References

  1.  Erosa , A; Gervais, M; Optimal Taxation in Life-Cycle Economies, Journal of Economic Theory, Volume 105, Issue 2, August 2002, Pages 338-369

    1. https://doi.org/10.1006/jeth.2001.2877

    Ashrafipour, M; (2013), Effects of financial policies on private sector consumption in Iran, Faculty of Economics, National University of Yerevan, Armenia, Economic Journal, Nos. 7 and 8, Mehr and Aban, 2013 (In Persian).

    Bossie, A; The asymmetric response of the economy to tax changes before and after 1980, The North American Journal of Economics and Finance, Volume 51, January 2020, 101075.

    Ansari Nesab, M; Torab;F (2014) Examining the short-term and long-term effects of consumption tax and income tax on private sector consumption in Iran's economy, Financial and Economic Policy Quarterly, third year, number 12, winter, 2014 (In Persian).

    Branson, William H; (2021) Theory and policies of macroeconomics, translated by Shakri Abbas, published by Nay . (In Persian).

    Conesa , C; Li , B; Li, Q; Welfare implications of switching to consumption taxation, Journal of Economic Dynamics and Control Volume 120, November 2020,

    https://doi.org/10.1016/j.jedc.2020.103991

    Onyinyechi, C; Omodero,The Consequences of Indirect Taxation on Consumption in Nigeria, Journal of Open Innovation: Technology, Market, and Complexity, Volume 6, Issue 4, December 2020, 105

    https://doi.org/10.3390/joitmc6040105

    Lin, C; Wei, L; Xu, Y;  (2023) Transforming firm innovation: International evidence on consumption tax adoption, Finance Research Letters

    https://doi.org/10.1016/j.frl.2023.104137

    Carbonnier, C; The incidence of non-linear price-dependent consumption taxes , journal of public economic , volume 118, October 2014.

    Dadgar, Y; (2017), public sector economics, Mofid University of Qom.

    Alp, E; Seven , Ü; The dynamics of household final consumption: The role of wealth channel, Central Bank Review, Volume 19, Issue 1, March 2019, Pages 21-32.

    Farahti,M; Abonouri;I; “Asymmetric effect of tax on income distribution in Iran, (2016) " Research Journal of Taxation, No. 39, Fall 2017. (In Persian)

    Fakhreddin, S; fakhre, h; Kaviani, M; (2023) in the article, the effect of tax rates on some economic variables in the framework of the general policies of the resistance economy, Macro Strategic Policy Quarterly, Volume 11, Number 42  (In Persian).

    Farahti,M;and Abonouri, I; Asymmetric effect of tax on income distribution in Iran, (2016) " Research Journal of Taxation, No. 39, Fall 2017. (In Persian).

    Raghfar,H; Mousavi,M; Afrooz;E i, Masoumeh Fuladi;K (2016) Investigating the effects of tax policies on consumer welfare in the form of the general equilibrium model of overlapping generations (OLG), Faculty of Economics, University of Tehran, Tax Research Journal, No. 31   (In Persian).

    Hassanzadeh Jezdani, A; (2019), Examining the response of macroeconomic variables to taxes in the Iranian economy within the framework of the stochastic dynamic general equilibrium model, Development and Capital Journal of Kerman University, 2019 . (In Persian).

    Izad khasti, H; (2016) Analysis of the effects of tax policy reform on macroeconomic variables in Iran: the approach of buying cash in advance, Economic Modeling Research, No. 28. (In Persian).

    Izad khasti, H; Dalali Esfahani, R; Samadi S; (2014), Welfare Effects of Replacing Consumption Tax with Inflation Tax with Side Effects and Leisure in Iran's Economy, Iranian Economic Studies Journal, Volume 4, Number 2, December 2014 (In Persian).

    Alves, J; Afonso, A; (2019). “Tax structure for consumption and income inequality: an empirical assessment”. Original Article

    http://link.springer.com/10.1007/s13209-019-00202-3

    Carlos Conesa, J;  Li , B; Li, Q;  ‘Welfare implications of switching consumption taxation, Journal of Economic Dynamics and Control.

    Ayşe K; and, Hüseyin, S; (3 February 2015).“Taxes and Private Consumption Expenditure”, Munich Personal RePEc Archive

     https://mpra.ub.uni-muenchen.de/61857/

    Jacob, M; Vossebürger, R; The role of personal income taxes in corporate investment decisions, Journal of Corporate Finance Volume 77, December 2022, 102275.

    https://doi.org/10.1016/j.jcorpfin.2022.102275

    Makian, S; Tavaklian, H;  Najafi Farashah, S; (2018), Studying the effect of direct taxes shock on GDP and inflation, Financial Economics Quarterly, 13th year, No. 94, Winte.

    Mohammadi; H (2013); Econometrics of time series; Tehran - Nash Qalam. (In Persian).

    Mousavi,B; Farazmand, H;  Mansouri, A, S; S(2021) "Tax system reform and the dynamics of macroeconomic variables of Iran" Research Journal of Taxation, No. 54, Summer 2022.  . (In Persian).

    Marzban, H; Sarem, M; (2014) Investigating welfare costs of royalty tax and consumption tax, economic researches and policies, number 74, summer 2014 (In Persian).

    Molaei, M; adi, A; (2015) "Investigation of temporary and permanent income shocks on household consumption in Iran" Quarterly of Applied Economic Theories, third year, number 3, fall 2015. (In Persian).

    Moeen, A, Mehdi, M; M (2017) "Investigation of the impact of income tax on legal entities (companies) on the level of expenditure of urban and rural households" Economic Research and Policy Quarterly, No. 89, Winter 2017. (In Persian).

     

    Gayaneh, N; Tayabnia A; Yousefi, K; (2022), Effects of production consumption tax and capital income tax, tax research paper/number fifty-five

    Nofarsti, M; (1400), applied econometrics of time series data, Tehran Shahid Beheshti University, Printing and Publishing Center 1400. (In Persian).

    Salem,A; Gholami, E; (2022) Estimation of the optimal tax rate on health-damaging consumer goods in Iran, Economic Research and Policy Quarterly, Volume 30, Number 101 . (In Persian)

    , Dhami, S; al- nowaihi , A; (2007), Why do people pay Taxes? Prospect theory verus expected utility theory, Journal of Economic Behavior & Organization,volume,64,September 2007

    Sepherdoost, H; Mohtashmi, S; Tartar, M; (2019) "Effect of tax on the structural equations of the demand sector of Iran's macroeconomics using the Bayesian approach" Economic Policymaking, Yazd University, Volume 12, Number 24. (In Persian).

    Tomer Blumkin 1; Bradley J; Yosef Ganun , R; ‘ Are income and consumption taxes ever really equivalent? Evidence from a real-effort experiment with real goods, European Economic Review, Volume 56, Issue 6, August 2012, Pages 1200-1219

    https://doi.org/10.1016/j.euroecorev.2012.06.001

    Nguyen,T,V; Khieu, Hoang; (2020).” Does a global wealth tax reduce inequality?”, February 2020.

    https://doi.org/10.1016/j.rie.2020.02.004

    Aronsson, T; Johansson-Stenman, O; ‘A note on optimal taxation, status consumption, and unemployment, Journal of Public Economics Volume 200, August 2021, 104458 .

    Teshkini, A; (2013); Applied econometrics with the help of microfit, ninth chapter, Tehran, Noor Alam publishing house. (In Persian).

Files

History

  • Receive Date: 15 November 2023
  • Revise Date: 23 April 2024
  • Accept Date: 15 June 2024

Share

How to cite

Statistics