Feasibility Study of Introducing Iranian Bank Deposit Interest Tax with Emphasis on Allocative Efficiency

To investigate the possibility of establishing taxes on deposit interest in Iran، the deadweight losses due to deposit supply and loan demand is estimated by using annual data for the period of (1973-2012). The results show that by establishing one unit of tax on deposit interest rate during 2010 and as a result one percent interest rate increase، deadweight losses will be 3،137 and the government’s revenue will be 19،076 billion Rials. While the depositor''s tax burden will be 0. 97 and tax burden of loan applicant will be 0. 03 out of one unit of tax on deposit interest. The findings also indicate that the banks play a positive role in leading the deposits toward investment while government expenditure has a negative impact on private sector''s investment (a part of which is from income tax). Furthermore، the efficiency of private investment in effecting on production comparing to public investment is higher. These results indicate the fact that the interest tax will cause distortion in the allocation of resources and social losses will be followed.