The Laffer Effect of Contribution Rate: The Case Study of Iranian Social Security Organization

The Laffer curve represents a parabola relationship between tax revenues and tax rates, and identifies the tax rate that maximizes tax revenues for the government. The aim of this paper is to test whether there is such a relationship between contribution revenues and contribution rate in Iranian Social Security Organization. Moreover, if the answer is yes, what is the contribution rate that maximizes revenues for the Organization? In this regard, we have used an Autoregressive Distributed Lag (ARDL) model. The results for the period of 1979-2016 show that the impact of effective contribution rate on the Organization’s revenues has the shape of an inverted U. Therefore, the results confirm the Laffer effects of this rate on the Organization’s contribution revenues. Additionally, a contribution rate of 20.34 percent will maximize the Organization's revenues.