Volume 17, Issue 6 (2009)                   J Tax Res 2009, 17(6): 7-40 | Back to browse issues page

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Hozhabr Kiani K, Mohammadi F, Gholami E. Calculating Optimal Rates of “Business & Professions Income Tax” and “Corporate Income Tax”. J Tax Res. 2009; 17 (6) :7-40
URL: http://taxjournal.ir/article-1-130-en.html
1- Professor of Economics at Shahid Beheshti University of Tehran
2- PhD Candidate of Economics
3- PhD Candidate of Economics, Islamic Azad University, Science & Research Branch
Abstract:   (9616 Views)
In this paper, optimal tax rates for real and legal entity income taxes have been estimated. Optimal taxation means optimal maximization of total utility functions of entities with regard to the budget constraint and a constraint wherein the entities make their choices of labor supply taking into consideration the relationship between labor and income. The foundation of our estimation has been Diamond’s model (1998) which is itself an extended form of Diamond and Myrrless’s model (1971). This model is, in its turn, an adaptation of Saez’s model, an important optimal taxation model. The statistic population being used for the calculation includes real entities in Tehran and legal entities in Tehran and Kermanshah cities. In order to cover the fairness of income distribution, the statistical data has been classified in terms of income deciles, and Gini coefficient was calculated as an indicator of income distribution variance. Then, an appropriate model which is assumed to have the best impact on the decrease of the Gini coefficient has been selected. Finally, through the application of the selected model and taking into account different levels labor force elasticity (for real entities) and services supply elasticity (for legal entities), the optimal tax rates have been calculated. The results obtained indicate that in the Iranian tax system, the application of new rates would lead to a better distribution of income as well as an increase of 150% in the government tax revenues. Moreover, the calculated rates are able to be interpreted on the basis of an extended formulation of Laffer’s curve.
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Type of Study: Research |
Received: 2009/04/6 | Accepted: 2009/09/21 | Published: 2014/03/14

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