عنوان مقاله [English]
Introduction: Taxes, as an effective policy of governments to achieve their desired economic, social and political goals, can affect the welfare of the society by influencing the production and distribution of income. However, different types of taxes do not necessarily have the same effect on social welfare, as they may have different welfare effects in terms of sign and magnitude. Accordingly, the question arises as what effect the substitution of different tax items and, thus, the change in the tax mix will have on the level of welfare. In other words, how does an increase in the share of each tax in the total tax revenue and, conversely, a decrease in the share of each of the other taxes of the same magnitude affect social welfare? Generally, if two types of taxes reduce or increase the welfare of the society, substituting one that has a smaller or larger effect for the other can improve the welfare. On the other hand, if two types of taxes have opposite welfare effects, substituting one that increases welfare for the other will eventually improve the welfare. Therefore, the choice of an optimal tax mix is of great importance for tax policies. In this regard, the main purpose of this study is to analyze the welfare consequences of substituting different types of taxes (including indirect tax, income tax, wealth tax and corporate tax) with the assumption of a constant government budget (i.e., budget-neutral changes in the tax mix) for Iran.
Methodology: This study employs an empirical model consisting of four regression equations, in each of which social welfare, measured by the Gini social welfare function proposed by Sen (1974), is considered as the dependent variable. On the other hand, the percentage shares of the four main tax categories in the total tax revenue that add up to 100 percent and a number of other key factors that potentially affect social welfare (i.e., inflation rate, the ratio of government consumption expenditure to GDP, and the degree of trade openness) are used as explanatory variables. However, one of the tax shares is excluded from each equation. In other words, three of the four tax shares and a common set of other potential determinants of welfare are included on the right-hand side of each equation. Given that the sum of the four tax shares is always equal to 100% and that the specification of the non-tax variables is the same in all the equations, the coefficient of each of the three tax shares included in each equation represents the effect of a one-unit increase (decrease) in that tax share and, conversely, a one-unit decrease (increase) in the tax share excluded from the equation on social welfare. The reason is obvious. Generally, each coefficient in a regression model signifies the change in the mean of the dependent variable per unit increase in the associated explanatory variable when all the other explanatory variables are held constant. On the other hand, since the sum of the four tax shares is equal to 100%, a one-unit increase (decrease) in one of the three tax shares included in each regression equation and the other two tax shares held constant mean a one-unit decrease (increase) in the tax share excluded from the equation. Finally, the regression equations are estimated separately using the autoregressive distributed lag (ARDL) approach and the data for the period of 1982-2018.
Results and Discussion: In this study, firstly, social welfare is measured using the Gini social welfare function for the period of 1982-2018. The results show that the welfare of society has generally improved over the period of 1988-2011, but, since then, it has been accompanied by some fluctuations. In the next step, the Phillips-Perron test is applied to determine the order of integration of the variables under consideration. The results of this test reveal that the maximum order of variables integration in each of the four regression equations is 1, satisfying the necessary conditions to implement the bounds procedure based on the Wald or F-statistics in testing due to the existence of a long-run relationship among variables (i.e., co-integration testing). The results show that the null hypothesis of no co-integration is rejected for each of the models. Thus, the estimated ARDL model is used to solve the long-run relationship between the variables in each model. The analysis then proceeds based on such estimated long-run relationships (coefficients). The findings indicate that a) a one-unit increase in the percentage share of the income tax in the total tax revenue and, conversely, a decrease in the percentage share of the corporate tax of the same magnitude will improve social welfare, b) a one-unit increase in the percentage share of the income tax and, conversely, a decrease in the percentage share of the indirect tax of the same magnitude will improve social welfare, c) a one-unit increase in the percentage share of the wealth tax and, conversely, a decrease in the percentage share of the corporate tax of the same magnitude will improve social welfare, and d) a one-unit increase in the percentage share of the wealth tax and, conversely, a decrease in the percentage share of the indirect tax of the same magnitude will improve social welfare. In addition, substitutions (1) to (4) have the most to the least effect on welfare, respectively. Finally, other substitutions (i.e., substituting income tax and wealth tax with each other and substituting corporate tax and indirect tax with each other) do not have a significant impact on the welfare of the society.
Conclusion: This study examines the effects of substituting different tax items (i.e., budget-neutral changes in the tax mix) on social welfare in Iran using the corresponding data for the period of 1982-2018. The empirical results show that a budget-neutral substitution of income tax or wealth tax for indirect tax leads to an increase in social welfare in the long-run. In addition, the budget-neutral substitution of income tax or wealth tax for corporate tax can improve social welfare in the long-run. These findings have important implications for reforming the country’s tax structure in order to improve the welfare of the society.