Evaluating the efficiency of the tax system and its impact on economic growth

Document Type : Scientific paper

Authors

Payame Noor University

Abstract

The ratio of tax to gross domestic product (GDP) is one of the factors measuring the role of public section in economic activities of the country which indicates the tax system’s efforts in collecting tax considering the surplus (added) value in the economy. Such a ratio suggests the rate of economic activities liable for tax basis, and shows the amount of money that public section draws back from economic resources and injects into different economic sections for fulfilling tax goals. The present paper studies the ratio of real tax to gross domestic products and its effects on country’s economic growth during recent decades (1977-2012). The paper’s method of analysis is based on an endogenous growth model adapted to a country like Iran in which economic structure relies on exchange income of oil sale and Cashin pattern is used too. Findings and results of the paper suggest that increasing taxes affects negatively on country’s economic growth by 0.14 to 0.16 percent. The results also indicate that the ratio of tax to surplus (added) value of economic sections which  are liable for  paying  tax comparing with other selected countries not only is not slight, but also is more regarding the economic facts of our country. Selected countries include developed, developing and oil exporter countries.

Keywords

References

Amid, A. (1997), "Effects of Fiscal Policies on Economic Growth", M.A. Thesis, Higher Institution in Planning & Development.
Arnold, J. (2008). Do Tax Structures Affect Aggregate Economic Growth? Empirical Evidence from a Panel of OECD Countries. OECD Economics Department, Working Paper No. 643.
Bairam, E. (1990). Government Size and Economic Growth: The African Expereince, 1960-85”. Applied Economics, Vol.22.
Biabani, J. (2009), "Iran's Economy: National Development Regarding Challenges & Potentials", Rajaa Higher Education Centre.
Bodan, L. (1973), "Economic Thoughts", translated by HooshangNahavandi, Tehran, University of Tehran Press.
Branson, W.H. (1997), "Macroeconomic Theories and Policies", translated by Abbas Shakeri, Tehran, Ney Publications.
Cashin, P. (1995). Government Spending, Taxes and Economic Growth. IMF Staff Papers, International Monetary Fund.
Crossley, T.F., Low, H. and Wakefield, M. (2009). The Economics of a Temporary VAT Cut. Fiscal Studies, 30, 1 (March), 3-16.
De Castro, F. and P. Hernández de Cos. (2008). The Economic Effects Of Exogenous Fiscal Policy Shocks In Spain A SAVR Approach.  European Central Bank, Frankfurt am Main, Germany.
Engen, E.M. and Skiner, I. (1992). Fiscal Policy and Economic Growth. NBER Working Paper, No.4223, Cambridge, MA.
Fair, Ray. (1979). On Modeling the Effects of Government Politics. American Economics Review.Vo169,No.2. pp. 25-42.
Falahati, A. &Moradpur M. (2011), "Investigating the Effects of Tax Shocks in Iran's Economy", Tax Journal, 12, 28-34.
Floster, S. and Henrekson, M. (2001). Growth Effects of GovernmentExpenDiture and Taxation Inrich Countries. Europan Economic Review 82, 942-943.
Fölster, S. and Henrekson, M. (2006). Growth Effects of Government Expenditure and Taxation in Rich Countries: A Reply. European Economic Review, 50: 219-221.
Fplster, S. and Henrekson, M. (1999).Growth and Public Sector: A Critique of Critics. European Journal of Political Economy, 15, pp.337-358.
Fu, Dong, Lori, L., Taylor and Mine, K. Yucel (2003). Fiscal Policy and Growth. Jel Working Paper, No.0301.
Heady, C., Johansson, A., Arnold, J., Brys, B. &Vartia, L. (2009). Tax Policy for Economic Recovery and Growth -December 2009 -KDPE 0925.
JafariSamimi, A. (1990), "Government Revenues and Economic Growth in Iran: An Empirical Analysis", Economics & Management Journal, 7, 88-103.
Johansson, A., Heady, C., Arnold, J., Brys, B. and L. Vartia, (2008). Taxation and Economic Growth. OECD Economics Department Working Papers, 620.
Leamer, E.E. (1983). Lets Take the Con Out of Econometrics. American Economic Review, 73, pp.31-43.
Marsden, Keith (1983). Links between Taxes and Economic, Growth: Some Empirical Evidence, World Bank Working Paper 605.
Mendoza, E.G., Milesi-Ferretti, G.M., Asea, P.  (1997). On the Ineffectiveness of Tax Policy in Alering Long-Run Growth: HarbergarsSupernaturality Conjecture. Journal of Public Economics. 66, 1997, pp.99-126.
Mojtahed, A. &Ahmadian, A. (2008), "The Effects of Tax Revenues on Social Welfare in Iran", Economic Research, 7(1), 45-71.
Narayan, P. K. and Narayan, S. (2006). Goverment Revenue and Government Expenditure Nexus: Evidence from Developing Countries. Applied Economics, 38, 285-291.
Parvin, S. &GholiBaglu, M.R. (2002), "Investigating the Effects of Government Expenditure on Macroeconomic Variables in Iran", Plan & Budget Journal, 72, 3-42.
Pazhuian, J. (1997), "Investigating Tax System in Iran", Tehran, Research Centre of the Islamic Parliament.
Poor Moghim, S.J. (2003), "Public Finance", Tehran, Ney Publications.
Roberts, P. C. (1984). Supply Side Economic – The MC Grow Hill Eneyclopedia of Economics.
Sattarifar, R. (2004), "Effects of Government Expenditure and Taxes on Economic Growth of OPEC Countries", M.A. Thesis, AllamehTabatabaei University.
Shafiei, A., Borumand, Sh. &Tashkini, A. (2006), "The Effects of Fiscal Policy on Economic Growth", Economic Research, 23, 81-112.
Shirazi, M. (2006), "Effects of Government Expenditure on GDP & Economic Growth", M.A. Thesis, Shiraz University.
Taghipur, A. (2008), "Tax Collection, Inflation and Real Tax Revenue", Plan & Budget Journal, 42, 25-46.
Tanzi, V. (1996), "Effects of Macroeconomic Policies on Tax Receiving in Developing Countries", translated by Yazdizadeh, M.R., Tax Hournal, 18, 12-15.
Tanzi, V. (1996), "Role of Service Sector in Relation with the Present Tax System", translated by Kordbache, H. &Talaei, M., Economic Affairs Ministry Publications.
Vartia, L. (2008).  How Do Taxes Affect Investment and Productivity? Industry Level Analysis of OECD Countries. OECD Economics Department, Working Paper No. 656.
Yoon, G. (2012). Explosive U.S Budget Dificit. Journal of Economic Modeling, Vol.29.
Zamanzadeh, A. (2006), "Effects of Government Expenditure and Taxes on Economic Growth in Iran", M.A. Thesis, ShahidBeheshti University.
Zooashkiani, M. (1995), "The Relationship between Economic Growth & Public Sector in Iran, An Empirical Analysis", M.A. Thesis, Mazandaran University.
Macroeconomics Research Letter
Volume 11, Issue 21
June 2016
Pages 155-177

Files

History

  • Receive Date: 18 December 2016
  • Revise Date: 12 March 2017
  • Accept Date: 11 March 2017

Share

How to cite

Statistics