Modeling of Growth and Welfare Effects of Tax Reform in Iran: A Static Computable General Equilibrium Analysis

Abstract

F or several decades, the selection of a proper tax base has been among the most serious concerns for the economic policy makers. The computable general equilibrium models analysis provides a comprehensive framework for the investigation of the effects of the adopted policies on the economy of a country. In the present study, using a static computable general equilibrium, the effects of tax reform in Iran have been taken into account. The results of the static comparative analysis show that a reduction in the capital income tax and the wage tax leads to the enhancement of the economic growth and welfare of Iranian households. Besides, the policy of decreasing the consumption tax results in a decrease in the economic growth of the country. Simulation results of the comparative static analysis show that the wage tax has the greatest effect on the economy of the country. The second greatest effects are associated with the capital income tax and the consumption income tax, respectively.