Journal of Economic Research (Tahghighat- E- Eghtesadi)

Journal of Economic Research (Tahghighat- E- Eghtesadi)

Modeling the Value Added Tax on Bank Services in the Framework of the Dynamic Stochastic General Equilibrium Model for Iran

Document Type : Research Paper

Authors
Ahmad Gholami 1
Hossein Abasinejad 2
1 Faculty economic of Tehran university, Iran
2 Economic department, faculty of Economic, Tehran university, Tehran, Iran
10.22059/jte.2018.67326
Abstract
In the Iran Value Added Tax System, some goods and services, including bank services, are exempt from paying tax. Based on theoretical literature, the exemption has created several distortions in the economy. Using Dynamic Stochastic General Equilibrium Model, this paper in order to understand the importance of VAT exemptions in macroeconomic fluctuations and the fundamental role of financial intermediaries in economic shocks, investigates the effects of levying VAT on bank services and by using the annual economic indicators of Iran during the period 1365-1394, moving from exempt treatment to hypothetical full taxation, the response of macroeconomic variables to various shocks is also examined. To optimize the parameters of the model, we used the Bayesian and calibration method. Finally, accuracy of the model is evaluated using the Brooks & Goleman test and impulse response functions. The model is then simulated under reasonable assumptions regarding parameter values. The results indicate that implying VAT on banks, through reduces their costs, leads to increasing in bank resources and lending power so supply of credits, investment and production increases. Simulation results show that shifting the VAT policy from exempt treatment to full taxation, bank facilities increases and as a result, output is higher under full taxation.
JEL Classification: H20, E58, E52, H25, H30
Keywords
dynamic stochastic general equilibrium
Macroeconomic fluctuations
DSGE
VAT
Exemption
Subjects
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  • Receive Date 01 July 2017
  • Revise Date 25 January 2018
  • Accept Date 08 May 2018