Evaluation of Financing Effects Through Direct Taxes on Economic Growth in Iran

In most countries, a major source of government revenue is funded through taxes. Tax share of total public revenues is different among countries and the rate depends on the level of development and economic structure. For this reason, the necessity to understanding of causes, aggravating factors, tax evasion, providing practical solutions and scientific recommendations will be inevitable. According to the current study by using a smooth transition regression (STR) and annual data from 1971-2015, we investigate the effects of direct financing through amendments of direct tax law on economic growth in Iran’s conventional model of economic growth. The results of this study, along with the theoretical foundations and the prevailing belief of most economists, showed that the effect of different methods of financing through direct taxes on economic growth in Iran conditional on the state of the economy, in particular in accordance with the results of investment. It means that in the first regime, when the investment share of GDP is became less than 34/05 percent, financed by oil revenues has negative effects and financing through tax revenues had a positive effect on economic growth. But in the second regime, when the investment share of GDP is more than 28/01 percent, the financing of both oil and tax revenues had a positive effect on economic growth. Although in the second regime and by increasing the investment to keep pace with positive impact on the severity funded through tax revenues increased.