The Impacts of Taxes on Inequality and Income Distribution in Iran

One of the essential functions of governments in all economies is to satisfy the prerequisites of achieving economic equality and to fairly distribute the acquired incomes. Taxes are considered as one of policy-making instruments to be used for achieving these goals. An exploration of changes in the welfare conditions of people during certain periods of time would make it possible to analyze the outcomes of economic policies adopted throughout those periods. The present research has been devoted to an investigation of the impacts of taxes on the income distribution during the period 1974-2005. To do the task, I have firstly explained the factors affecting the inequalities and the conditions of income distribution during the intended period and then, through making use of econometrical techniques and OLS model, I have studied the impacts of taxes on the income distribution index (Gini coefficient). Research findings indicate that an increase in the Tax/GDP ratio as well as a decrease in the rates of direct taxes (in comparison with the rates of indirect taxes), results in the raising of the Gini coefficient.