Analyzes the Effects of Tax policy Reform on Macroeconomic Variables in Iran: Cash in Advance Approach (CIA)

izadkhasti, Hojjat

doi:10.29252/jemr.7.28.191

Volume 8, Issue 28 (7-2017) jemr 2017, 8(28): 191-226 | Back to browse issues page

‎ 10.29252/jemr.7.28.191

‎ 20.1001.1.22286454.1396.7.28.5.9

Mendeley

Zotero

RefWorks

izadkhasti H. Analyzes the Effects of Tax policy Reform on Macroeconomic Variables in Iran: Cash in Advance Approach (CIA). jemr 2017; 8 (28) :191-226
URL: http://jemr.khu.ac.ir/article-1-1449-en.html

Analyzes the Effects of Tax policy Reform on Macroeconomic Variables in Iran: Cash in Advance Approach (CIA)

Hojjat Izadkhasti ^*

Shahid Beheshti University , h_izadkhastiir@sbu.ac.

Abstract: (7429 Views)

An efficient monetary and tax system plays an important role in the proper performance of the economic system, and can effect on motivation of labor, consumer, savings and investment behavior. A theory of monetary and tax reform is movement of the income tax system and inflation tax to the system of consumption tax, that can increase the tendency to savings, investment and capital accumulation. In this study, with public finance approach and using dynamic general equilibrium model with cash in advance restriction on consumption and investment, analysis the effects of reform inflation tax and consumption tax rates during the equilibrium growth path. Then, with put the amount of parameters in the steady state, sensitivity analysis of the variables to the reform of inflation tax and consumption tax rates will be discussed in the various reform program. The results of calibration and sensitivity analysis in various scenarios indicates that the reduce of inflation tax and increase the consumption tax rate, along with reducing the size of government and reduce liquidity constraints on investment, has increased capital accumulation, production, consumption, real money balances per capita and the welfare in the steady state.

Keywords: Growth Model, Cash in Advance, Inflation Tax, Consumption Tax, Welfare Cost

Full-Text [PDF 3005 kb] (3710 Downloads)

Type of Study: Applicable | Subject: بخش عمومی
Received: 2016/07/8 | Accepted: 2017/06/14 | Published: 2017/09/17

References

1. Abel, A. B., (1985). Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model. Journal of Monetary Economics, Vol. 16(1), 55-71. [DOI:10.1016/0304-3932(85)90006-6]

2. ‌ - Altig D. et al. (2001), Simulating Fundamental Tax Reform in the United States, American Economic Review, 91, 574-595. [DOI:10.1257/aer.91.3.574]

3. Adam, A., Kammas, P., & Lapatinas, A. (2015). Income Inequality and the Tax Structure: Evidence from Developed and Developing Countries, Journal of Comparative Economics, 43, 138-154. [DOI:10.1016/j.jce.2014.05.006]

4. Angelopoulos, K. et al. (2012), Tax Structure, Growth and Welfare in the UK, Oxford Economic Papers, 64, (2), 237-258(22). [DOI:10.1093/oep/gpr035]

5. Bailey, M.J., (1956). The Welfare Cost of Inflationary Finance, Journal of Political Economy, 64 (2), 93-110. [DOI:10.1086/257766]

6. Braun, R. A., (1994). How Large is the Optimal Inflation Tax?, Journal of Monetary Economics, 34 (2), 201-14. [DOI:10.1016/0304-3932(94)90049-3]

7. Bates, T.W., Kahle, K.M., Stulz, R.M., (2006). Why do U.S. Firms Hold so Much more Cash than They Used to? NBER Working Paper No. 12534. [DOI:10.3386/w12534]

8. Canavire-Bacarreza, G., Martinez-Vazquez, J. and Vulovic, V. (2013). Taxation and Economic Growth in Latin America, Inter-American Development Bank (IDB).

9. Chari, V.V., Christiano, L.J., Kehoe, P.J., (1991). Optimal Fiscal and Monetary Policy: Some Recent Results. Journal of Money, Credit, and Banking, 23, 519-539. [DOI:10.2307/1992686]

10. Dallali Isfahani, R, Renani, M, Sameti, M & Esmaeilzadeh, R., (2008). Sustainable Economic Growth and Public Expenditure in Iran: A Dynamic Analysis, Economic Research, 30, 40-15.

11. Dashtbar Farouji, M, Samadi, S, Daliy Esfahani, R, Fakhar, M., & Abdollah Milani, M., (2011). Developing a Pattern of Overlapping Generations 55 Periods with the Reform of the Retirement of the Country, Quarterly Journal of Economic Modeling Research, 2, 203-173.

12. Friedman, M., (1953). Discussion of the Inflationary Gap, in Essays in Positive Economics, Chicago Univ: Chicago Press.

13. Friedman, M., (1969). The Optimum Quantity of Money and Other Essays, Chicago: Aldine Publishing Company, Hawthorne. New York.

14. Gordon, R., & Li, W. (2009). Tax Structures in Developing Countries: Many puzzles and a possible explanation, Journal of Public Economics, 93, 855-866. [DOI:10.1016/j.jpubeco.2009.04.001]

15. Heady, C., Johansson, A., Arnold, J., Brys, B., & Vartia, L., (2011). Tax Policy for Economic Recovery and Growth, University of Kent, School of Economics Discussion Papers.

16. Heer, B., (2003). Welfare Costs of Inflation in a Dynamic Economy with Search Unemployment, Journal of Economic Dynamic & Control, 28 (2), 255 -272. [DOI:10.1016/S0165-1889(02)00136-7]

17. Hinrichs, H, (1966). A General Theory of Tax Structure Change During Economic Development. Harvard Law School, Cambridge.

18. H0, W.M., Zeng., J. & Zang, J., (2007). Inflation Tax and Welfare with Externality and Leisure, Journal of Money, Credit and Banking, 39 (1), 105-131. [DOI:10.1111/j.0022-2879.2007.00005.x]

19. Izadkhasti, H, Samadi, S., & Dallali Isfahani, R., (2015). The Effect of Inflation Tax on the Resources of Allocation and Welfare in the Iranian Economy: Presenting a Neoclassical Growth Model with Consideration of Leisure and Externality Effects of Production, Journal of Economic Research, 50 (2), 280-253.

20. Ji-Taek, S (2003), Economic Effects of Tax Reform in an Overlapping Generations Model, PhD Thesis, Tohoku University.

21. Jokisch, S. and Laurence J. Kotlikoff., (2007). Simulating the Dynamic Macroeconomic and Microeconomic Effects of the Fair Tax, National Tax Journal, 225-252. [DOI:10.17310/ntj.2007.2.04]

22. Kamali Anaraki, S., & Raghfar, H., (2014). The Welfare Effects of Tax Reforms the Welfare Effects of Tax Reforms in Iran within the framework of a General Dynamic Equilibrium Model, Journal of Tax Research, 22 (70), 52-9.

23. Lucas, R.E. Jr., (2000). Inflation and Welfare, Econometrica, 68 (2), 247-274. [DOI:10.1111/1468-0262.00109]

24. Lu, H.C., Chen, B.L, & Hsu M., (2011). The Dynamic Welfare Cost of Seigniorage Tax and Consumption Tax in a Neoclassical Growth Model with a Cash-In-Advance Constraint. Journal of Macroeconomics, 33 (2), 247-258. [DOI:10.1016/j.jmacro.2010.11.004]

25. ‌- Mehrara, M., & Esfahani, P., (1394). Investigating the Relationship between Income Distribution and Tax Structure in Selected Countries, Journal of Tax Research, 27 (76), 228-209.

26. Newbery, D, Stern, N., (1987). the Theory of Taxation for Developing Countries. Oxford University Press, New York.

27. Phelps, E., (1973). Inflation in the Theory of Public Finance, the Swedish Journal of Economics, 75 (1), 67-82. [DOI:10.2307/3439275]

28. Pailvos,T & Yip, C., (1995). Government Expenditure Financing in an Endogenous Growth Model: a Comparison, Journal of Money, Credit and Banking, 27 (4), 1159-1178. [DOI:10.2307/2077795]

29. Papageorgiou, D., (2009). Macroeconomic Implications of Alternative Tax Regimes: The Case of Greece, Economic Research Department, Bank of Greece.

30. Reza Gholizadeh, M., & Aghaei, M., (2015). The Effect of Direct Taxes on Income Distribution in Iran, Majles and Strategic Quarterly, Twenty-Two Years, 80, 156-129.

31. Ramsey, F.P., (1928). A Mathematical Theory of Saving, the Economic Journal, 38 (152), 543-559. [DOI:10.2307/2224098]

32. Stockman, A., (1981). Anticipated Inflation and the Capital Stock in a Cash-in-Advance Economy, Journal of Monetary Economics, 8 (3), 387-393. [DOI:10.1016/0304-3932(81)90018-0]

33. Walsh, C.E., (2010). Monetary Theory and Policy, Cambridge, Massachuesetts: MIT Press, 3ed.

34. Wang, P., and Yip, C. K., (1992). Alternative Approaches to Money and Growth, Journal of Money, Credit, and Banking, 24 (4), 553-562. [DOI:10.2307/1992811]