The Cost-benefit Analysis of Tax Incentives in Iranian Economy in Selected Industries

By using theoretical and practical relations of investment and cost of capital, this paper firstly investigates how tax incentives stimulate investment; and secondly the benefit of these incentives against their costs (i.e. government revenue forgone). In fact, this analysis has been done using effective tax rate-based models and production structure frameworks during 1993-2011 period. Based on results, investment in food and chemical industries (as selected cases) takes significant effect from cost of capital but size of its sensitivity is very trivial. It implies that the benefit of fiscal stimulate is smaller in relation with its cost.