state dependent values of tax multiplier in iran

Subject Areas : Labor and Demographic Economics

negin heidarizadeh ¹ , sayed.yahya abtahi ² , zohreh tabatabaeinasab ³ , mohamadali dehghantafti ⁴

1 - PhD student, Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran
2 - Assistant Professor of Economics, Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran
3 - Assistant Professor of Economics, Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran
4 - Assistant Professor of Economics, Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran

Received: 2022-04-18 Accepted : 2023-03-09 Published : 2023-02-20

Keywords: threshold models, state-dependent, tax multiplier,

Abstract :

Changes in taxes under different conditions of output growth can have completely different macroeconomic effects, and in this regard, some empirical evidence emphasizes the non-linearity and state-dependent effects of fiscal policy. This paper examines the state-dependent behavior of tax multiplier in Iran. Accordingly, a threshold model of specification presented by Romer and Romer (2010) is used to examine the coefficients related to the status of tax revenues to examine the effects of fiscal policies on output in the Iranian economy. The results of this study using quarterly data 1369: 02- 1398: 04 show that tax multiplier in low and medium regimes of economic growth is not significant. But the rising tax multiplier in a high-growth regime is quite significant. Also, increasing tax multiplier coefficients become smaller in periods of low economic growth, and these coefficients become larger in periods of high growth than in the entire sample period. Thus, tax policies in good times are quite effective tools, and the results emphasize the role of tax policies as a stabilizing tool by using the "right tool" at the "right time". Thus, although tax policies do not play an effective role during a recession, they can become a very effective tool for stabilizing and sustaining economic growth during a boom.

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