Determination of Optimal Taxation on Foreign Direct Investment in Small Open Economy for Iran Compared to Selected Countries.

Document Type : Scientific paper

Authors

1 PhD student, Faculty of Economics, Management and Social Sciences, Shiraz University, Iran.

2 Associate professor, Faculty of Economics, Management and Social Sciences, Shiraz University, Iran.

Abstract

Each country for economic growth and development requires to create capital for financing and basic infrastructure. Countries that do'nt have sufficient capital to develop internally are trying to attract foreign capital and transfer funds and resources to establish economic enterprises with higher returns than other countries.. In order to achieve this, governments enter a competitive game and try to attract these funds with their policies. One of the most important of these policies is determining the optimal taxation on foreign direct investments. In this study, determine the optimal taxation on foreign direct investments in a small open economy for Iran and selected countries by expanding the Ramsey model and using a dynamic optimization control model, The results show that the optimal amount of tax for Iran from 1991 to 2017, although is negative in some years and indicates the payment of subsidies on foreign direct investment, but on average is 0.16 percent that is close to zero. While this rate has been different for some countries, most are trying to reduce tax rates to attract foreign capital. In this study, the results of optimizing foreign direct investment tax for selected countries indicate that despite the differences between these countries in terms of macroeconomic variables, but all rates of taxation is close to zero and even in In some cases, the negative amount of taxation (subsidy) is considered optimal for attracting foreign investments.

Keywords

References

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Macroeconomics Research Letter
Volume 15, Issue 29
August 2020
Pages 165-194

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History

  • Receive Date: 24 June 2020
  • Revise Date: 19 September 2020
  • Accept Date: 13 October 2020

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