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Paper Information

Journal:   THE ECONOMIC RESEARCH   FALL 2006 , Volume 6 , Number 3; Page(s) 49 To 69.
 
Paper: 

ESTIMATING TAX LAG AND PRICE ELASTICITY OF INCOME TAX FOR COMPANIES IN TEHRAN PROVINCE

 
 
Author(s):  NAJARZADEH R., ZARE H.R.
 
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Abstract: 

Tax Revenues are considered to be one of the most important sources of financing government expenditures in many countries.
However, such revenues are affected de-facto by the rate of inflation and the tax collection lags. Such factors are considered to be fundamental constraints for procuring the budget revenue.
Since the major parts of revenue from corporate taxes are realized in Tehran, an attempt is made to analyze the impact of the inflation rate on real tax revenue of the corporate taxes in the Tehran province. The purpose of present study is to estimate the tax collection lag and price elasticity of corporate income tax to improve the tax system in Iran. If the revenues derived from corporate taxes in the presence of inflation are collected on time, they do not face any reduction in value. In this paper by considering the impact of the inflation rate on tax revenues (Tanzi Hypothesis), which depends on the elasticity and the lags in collection of corporate income taxes, we tried to utilize the annual data for the period (1980-2001) to estimate the corporate tax collection lag for the Tehran province and the price elasticity of taxation system, quid pro qua. For this purpose, we have applied the Johnson-Juselius econometric method. The results per se indicate that the length of taxation lag is about 25 months and price elasticity of corporate income tax is 0.7 percent. It goes without saying that the dominance of the existing structural bottlenecks in "Direct income tax lag", delinquency of tax payers in fulfilling their legal duties and undue presence of certain executive impediments are the main causes of occurrence of tax lag and low price elasticity in Iran. Thus of inflation will reduce the real taxable income of corporate sector.

 
Keyword(s): TANZI EFFECT, TAX LAG, PRICE ELASTICITY OF INCOME TAX, GROSS NATIONAL INCOME OF CORPORATE INCOME TAX, TEHRAN PROVINCE, CPI
 
References: 
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