The impact of Tax Shocks on the Iranian Official and Underground Economy within the Framework of Dynamic Stochastic General Equilibrium Models (DSGE)

اقتصاد پولی مالی

Article 6, Volume 23, Issue 12, February 2017, Pages 111-134   

Document Type: پژوهشی

DOI: 10.22067/pm.v23i12.50338

Authors

Mohammad Hassan Fotros^{* 1}; Ali Dalei Milan²

¹Université Pierre-Mendès-France

²Bu-Ali Sina

Abstract

Falls in Iran's oil revenues necessitate relying more on taxation to finance public sector. So, underground economy and tax evasion and changing tax rate and its effect on the official and underground production in this way can help policymakers and economic advisers. Tax rates and social security contributions, the two main variables affecting the size of the underground economy and tax evasion. This study used a DSGE model framework for modelling the underground economy and the effect of oil shock, fiscal impulses (such as changing tax rates, social security contributions) and the shock of productivity on the official economy and underground economy. The results of the evaluation showed that the presented model was well able to simulate cyclical behavior and volatility of the variables. a positive shock in the corporate tax rate and income tax rate reduced the official production, increased underground production and tax evasion and decreased government revenue. Positive shock to oil revenues increased official production and reduced underground economy and consequently reduced tax evasion and increased revenue for the government.

Keywords

Underground Economy; Tax Evasion; Dynamic Stochastic General Equilibrium Models (DSGE); Iran