The Survey of VAT Rate Based on Household Expenditure

Considering the equity and efficiency aspects, this article assesses the rate of Value Added Tax on household consumption basket. As the standard approach to determine desirable directions of tax reforms is in harmony with the approach to compute the marginal social welfare cost, first marginal social welfare cost is calculated, and its inverse which is the marginal social tax productivity has been used for ranking of goods in various levels of inequality aversion coefficient and desirable tax rates. The calculation of marginal social tax productivity requires price elasticity of different goods. This elasticity is obtained from Almost Ideal Demand System (AIDS) estimation's results. Almost Ideal Demand System estimation is based on household expenditure survey of Iran has been done for period of 1371-1388 by time serie's approach. The interpretation of ranking followed here is that goods ranked lower are preferred to goods ranked higher as candidates for additional taxation, goods with high tax appeal are candidates for higher tax rates.