The structure and composition of taxes, foreign investment, and income inequality in Iran

راحله حسینی ¹ ( PhD student in Economics, Faculty of Management and Economics, Islamic Azad University, Science and Research Branch, Tehran, Iran )
Nader Mehregan ² ( Professor of Economics, Faculty of Economic and Social Sciences, Bu-Ali Sina University, Hamadan/ Hamadan/ Iran )
yazdan Naghdi ³ ( Assistant Professor, Department of Economics, Faculty of Humanities, Islamic Azad University, West Tehran Branch, Tehran, Iran )
SOHEILA kaghazian ⁴ ( Assistant Professor, Department of Economics, Faculty of Humanities, Islamic Azad University, West Tehran Branch, Tehran, Iran )

Submited date : 2025-05-21 Accepted date : 2025-08-26

Keywords: Income distribution, Palma index, Tax structure, Foreign direct investment, Kuznets hypothesis. ,

Abstract :

Reducing income inequality is one of the most important issues for achieving sustainable development, because income inequality can cause economic, political, and social instability. This has led policymakers to pay special attention to examining income distribution and ways to reduce inequality. One of the important tools in this field is taxes and tax policies, the effect of which on income distribution depends on the structure of the tax system. Systems that emphasize direct taxes usually have greater redistributive effects and help reduce inequality. In this study, the effect of the most important major tax items in the field of direct and indirect taxes on income distribution in Iran during the period of Q4 1387 to Q4 1402 has been examined using the Autoregressive Distributed Lag (ARDL) method. Palma and Gini coefficients are used to measure income inequality. The effects of foreign direct investment and GDP per capita income on income distribution are also evaluated. The results show that increasing value-added tax and tax on non-governmental legal entities leads to an increase in the Palma index and Gini coefficient. The effect of inheritance tax is significant and negative in both models. The effect of business tax and foreign investment on the Palma index and Gini coefficient is insignificant and significant and positive, respectively. An increase in GDP per capita income improves income distribution in both models. Also, the Kuznets hypothesis is not confirmed in the short and long run.

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