Tax Incidence: A Case Study of Value-Added Tax in Iran

Document Type : Research Paper


1 Assistant Professor of Economics, Sharif University of Technology

2 M.Sc. Economics, Sharif University of Technology


Tax incidence is a key question in empirical public finance and tax policy design. Using monthly price data from April 2005 to March 2014 in Iran, we classify 43 commodities to exempt and taxable groups. By comparing monthly price changes for the two categories over the periods with tax rate changes, we employ a difference-in-differences strategy to estimate VAT incidence. Consumer share of VAT is estimated to be 63 percent. However, this point estimate should be interpreted with caution because the 95 percent confidence interval is large and contains both full and less than complete pass through. No pass through is rejected at 5 percent significance level. Lack of precision in estimates could be a result of small tax increases and high inflation rates during this period.
JEL Classification: H22, H31, H32


Main Subjects

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Volume 52, Issue 4 - Serial Number 121
January 2018
Pages 997-1023
  • Receive Date: 14 February 2017
  • Revise Date: 22 May 2017
  • Accept Date: 07 October 2017
  • First Publish Date: 22 December 2017