Measurement and Analysis of Oil Revenues Effect on Tax Revenues in Iran

The aim of this study is to review the rentier state theory, with special regard to Iran. Iran’s rentier state is highly dependent on oil revenues, but much less on tax revenues. Even this negligible reliance on tax revenues, itself seems to be indebted to oil revenues. Thus the main research hypothesis is that Iran’s oil revenue is one of the main determinants of tax revenues. To empirically test the hypothesis, a modified version of Heller’s model was applied using ARDL approach and the annual data for the period 1965-2007. The findings of the research showed that oil revenue has a significant positive effect on tax revenues reflecting the rentierness of Iran’s state. An important implication of this result is that the state should lower the excessive reliance on oil revenues and start tax reform. The results also indicated that that GDP, industrial sector share in GDP and other state revenues have positive impact on tax revenues, while inflation has a negative effect.