A Study of the Fiscal Illusion of the Revenue Complexity in Iran’s Economy

The study of the factors influencing the increase of government expenditures is one of the main issues of public finance. Many theories have been proposed in this regard and experimentally tested in different countries. One of these theories is that of fiscal illusion that links the increase in the government costs to citizens’ lack of true perception about fiscal variables. The sources of fiscal illusion are usually described with five main hypotheses. One of them is the hypothesis of the complexity of the structure of government revenues. According to this hypothesis, the complexity of the revenue system makes citizens unable to correctly determine the tax price of public goods. This makes taxpayers underestimate the tax burden for public programs and, thus, increases public spending. In this research, the hypothesis of the complexity of the government revenue structure in Iran's economy during the years 1982-2016 was tested. To this end, an experimental model was specified according to the conditions of the Iranian economy. The proposed model was estimated using Autoregressive Distributed Lags (ARDL) and Error Correction Model (ECM) methods. According to the research findings, in the Iranian economy, taxpayers do not have the fiscal illusion of the complexity of the tax structure, and the fiscal illusion of intangible taxes is not empirically validated. The results also show that, due to oil revenues, people in the society have a high demand for government spending, and the tax system complexity is not a reason for the increased demand for public expenditures in Iran’s economy.