Study the Effects of Consumption Tax and Income Tax in Long-Time and Short-Time on the Private Sector Consumption in Iran Economy

Concerning the present conditions of Iran economy, it seems necessary to undermine the economy's dependent on Oil incomes and to increase the dependent of the Government on tax revenues. However, to increase every kind of tax can result in the growth of tax revenues but it can affect major economic variables differently, especially the negative effect upon the private sector consumption as one of the most important constituent variables in economic request. Concerning the importance of the present problem, the present study will consider the effects of income tax and consumption tax on private sector consumption from 1979-2014in Iran's economy. The results of Auto Regressive Distributed lag Method and the function of variance analysis shows that the effect of income tax is about two times higher than consumption tax over the private section. It shows that the index of income tax variable in long-time is 0/249 and the index of consumption tax variable is 0/116. So it is suggested that the Government can help from consumption tax to increase its tax revenues which has lesser negative effect upon the private section consume. If the Government is going to increase its tax revenues through the use of increasing income tax, it is better to consider its negative effects upon the Private sector consumption and to provide supplementary policies.