The Effects of Targeting Subsidies in Iran on VAT Revenues

Subject Areas : Applied Economics

الهام  غلامی ¹ (مسئول مکاتبات)

Received: 2010-03-01 Accepted : 2010-08-13 Published : 2010-09-23

Keywords: Targeting Subsidies, VAT, Almost Ideal Demand System,

Abstract :

The main objective of the article is to evaluate possible effects of targeting subsidies on the performance of VAT revenues in IRAN. Considering the characteristics of the VAT system in Iran, the Almost Ideal Demand System (AIDS( and Panel data methods have been used to forecast the VAT revenues in two different scenarios (targeting and not-targeting of subsidies) for the years 1389,1390. The results of the study show that targeting subsidies in 1389 may result in 19 percent increase in the revenue, while targeting subsidies in 1390 increases VAT by 41 both in current prices. Furthermore, the results of the model show that if the subsidies is not targeted and the 1389 budget bill forecast of the VAT is also replaced with the Forecasts made by the author, then the growth of the VAT will be negative. However the negative growth will be slight if the subsidies are targeted in the current year. Therefore, it is concluded that targeting subsidies may realize the budget forecasts of the VAT.