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Production Effects of Labor Income Taxation in Iran:
A General Equilibrium Model Approach
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Hossein Nasrollahi *    |
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Abstract: (18 Views) |
Taxation, as the main instrument for government financing and a key variable in improving macroeconomic variables, consists of two general parts: direct and indirect taxes, of which labor income tax is considered an important subset of direct taxes. In this regard, this research examines the production effects of changes in the labor income tax rate in Iran using a general equilibrium model in the steady state. The results show that an increase in this tax rate leads to a decrease in labor supply, gross domestic product, consumption and instantaneous utility (welfare). Specifically, a 10 percent increase in this tax from 10 to 20 percent leads to a reduction in gross domestic product and household welfare by 6.6 and 14.18 percent, respectively. Another finding is the nonlinear behavior of tax effects. In such a way that a reduction in the tax rate at high levels has a much greater effect on stimulating production and employment than at low levels. Also, the government's capacity to finance itself through bond issuance has an inverted U-shaped relationship with the labor income tax rate, reaching a maximum at a tax rate of 49.6 percent and then decreasing. In addition, gross domestic product shows the greatest sensitivity to the discount factor parameter. |
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| Keywords: General Equilibrium, Gross Domestic Product, Labor, Taxation |
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Full-Text [PDF 929 kb]
(13 Downloads)
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Type of Study: Research |
Subject:
Special
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