Evaluating the Impacts of the 2nd Phase of Subsidies Targeting Plan on Iran's Tax Revenues

Since the way by which the 2nd phase of Subsidies Targeting Plan is to be implemented، the levels of liberalization of the prices of energy carriers and the shares of different sectors in the total subsidies are not clear yet، and also due to the lack of up-to-date macroeconomic statistics required to study the immediate and short-run effects of the plan on Iranian tax revenues، in this article we have employed Vector Autoregressive Model (VAR) to answer the research question. At the same time، for the purpose of analyzing the dynamic interactional effects of the shocks created، we have resorted to the Forecast Error Variance Decomposition Functions (FECDs)، as well as the Impulse Response Functions methods for the period 1987-2012. The results obtained from the Impulse Response Functions Method indicate that in general، the elimination or decrease of subsidies (i. e. targeting subsidies) would lead to a decrease in tax revenues. Moreover، as for the tax sub-parts، the results of the model show that the direct taxes in fixed prices would be decreased upon the implementation of the Plan. On the other hand، the effect of a decrease in the amount of subsidies paid has led to an increase in the indirect taxes as equal to one unit of standard deviation in the first period while it is assumed to result in a decrease of indirect taxes in the second period and is expected to be eventually neutralized in subsequent periods