Investigating The Effect of Inflation on Rent-seeking from Tax Revenues: DSGE Approach

Document Type : Scientific paper

Authors

1 Ph.D. Student, Department of Economics and Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran.

2 Assistant Professor, Department of Economics and Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran

3 Assistant Professor of Economic South Tehran Branch Islamic Azad University

Abstract

Tax is the main and most stable financial source of the government and plays an important role in increasing the government's income. The level of realization of tax revenues depends on the economic structure of the country. In recent years, with the outrages rise of prices and the formation of high inflation in the country, people are reluctant to pay taxes and as a result motivation of rent-seeking from the government's tax revenues has enhanced. The purpose of this study is to investigate the effect of inflation on rent-seeking from tax revenues in Iran's economy. To achieve this goal, a new Keynesian Dynamic Stochastic General Equilibrium (DSGE) model has been purposed which considered the realities of Iran's economy and involved sectors of household, business, oil, government and central bank during period of 1991-2020. After extracting the equations of economic agents, the model has been processed in Dynare software. The simulated results indicate that the increase in prices has led to an increase in rent-seeking from the government's tax revenues which is consistent with the theoretical foundations of the economy and the reality observed in the country. Since the increase in rent-seeking from tax revenues leads to the reduction of public resources of the government budget, budget deficit, and a reduction in non-oil production and employment in the country, therefore, it is suggested that the country's economic policies should be implemented in order to control prices and limit the space for rent-seeking.

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Main Subjects

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Macroeconomics Research Letter
Volume 19, Issue 42
June 2024
Pages 115-138

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History

  • Receive Date: 14 May 2024
  • Revise Date: 03 June 2024
  • Accept Date: 26 June 2024

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