Tax Effort in Iran in Comparison with Selected Developing Countries

This paper aims at comparing tax effort in Iran with that of 14 developing countries including Jordan, Algeria, Malaysia, Congo, Nicaragua, India, Sri Lanka, Paraguay, Tunisia, Peru, Venezuela, Philippine, and South Africa. A tax ratio model is developed for this purpose. Seemingly Unrelated Regression (SUR) method and panel data for 1994-2002 periods are utilized to estimate the model. The results indicate that the tax ratio is positively affected by the shares of industry, service and foreign sector value added in GDP. However, we found that the ratio of foreign debt to GDP, the share of agricultural value added in GDP and inflation rate have negative impacts on the tax ratio.
Estimated tax shares are then used to calculate tax effort for the sample of countries under investigation. The results indicate that Iran has the least tax effort as compared with other countries under investigation. This implies that there is substantial room for improvement in tax effort in this country.
JEL Classification: H20, E60, E62.