The Impact of Corporate Income Tax Changes on the Welfare of Urban and Rural Households: A Computational General Equilibrium Approach

This study investigates the effects of increasing and decreasing corporate income tax on urban and rural household welfare. To estimate the general equilibrium model, the social accounting matrix of Iran in 2011 has been used. The model is solved in two scenarios, which include increasing and decreasing corporate taxes. Equivalent Variation index has been used to assess household welfare. Findings indicate that in the first scenario, 10, 20 and 50 percent increase in corporate taxes, decrease the welfare of urban households, but the welfare of rural households’ increases slightly. In these scenarios, the total welfare of urban and rural households decreases. In the second scenario, with the reduction of corporate taxes, the welfare of the urban household has an increasing trend and the rural household experiences a slight decrease in welfare. In this case total welfare increases. Since with the reduction of corporate income tax, the total welfare of households’ increases, so it is suggested that corporate income tax be reduced and replaced with other taxes. Due to the decrease in the welfare of rural households in this case, it is necessary to implement supportive policies to compensate for the welfare of rural households.