The Relationship between Economic Structural Changes and Tax Structure Changes: Lessons to Tax Policy- making

Based on theoretical points, structural changes are able to affect macroeconomic variables such as public finance variables significantly, and simultaneously take effect from those variables. This hypothesis is probably not true among all economies, necessarily. Therefore, this paper using Granger causality test investigates the relationship between economic structural changes and tax composition changes among several countries, which grouped based on level of their income. The results show that, there was one way causality between above variables during 1980-2013 and in the context of all stages of structural changes, either based on employment index (Lilien Index) or value added index (Stoikov Index), it was just one way causality effect from structural changes on tax composition changes index and opposite line wasnt true. Although, the effect of employment index has not seen immediately but after some lags, its effect reveals. The findings have considerable implications on tax policy making in Iran's economy.