The Impact of Financial Sector Activities on Direct Tax Revenue

Due to its allocative and distributive effects, tax has always been considered as one of themost important governmental policies. Basically, tax is the most efficient and economicalway of covering governmental costs. In fact, tax is the most important means of change innational revenue. Because of its ability to control, this revenue source is preferred to otherdomestic economical sources. In addition, the role and importance of the financial systemin the process of economic development of countries, the effectiveness and efficiency of thefinancial system can be used to seek the distinction between developed and underdevelopedeconomies. Therefore, understanding the impact of the financial sector on tax revenue is ofspecific importance. By financial sector, the present researcher means the money market, andthe capital market which are the most important parts of the financial sector of Iran economy.Financial sector will be analyzed by three operational indexes related to banking system andone operational index related to activities of capital market. As mentioned above, this paperexamines the relationship between banking and non-banking activities in financial sector ofIran and direct tax revenue over the period 1379: Q1 to 1393: Q3. The model has been estimatedby Autoregressive Distributed Lag pattern (ARDL). The result indicated that direct tax revenuetoward facilities granted by commercial bank had been more elastic compared to other researchvariables in short run and long run. The coefficient of error correction shows that in each period36 percent of the imbalances of the direct taxes has been adjusted and almost reached near toits long-term trend