The Optimal Tax Rate as a Fiscal policy Tool: Dynamic Optimal Theory Approach

Up to now in Iran's economy, a numerous tax bases have been identified with different rates. Here's the question that comes to mind is whether these rates are optimal. Is it possible to determine an average optimal rate in a way that would bring greater growth and prosperity? In the present study, weve been looking for Iran's optimal tax rate using time series data in the years 1978-2014 via a dynamic optimal control approach and the maximum principle. According to the findings, the optimal tax rate is 20%. And the main factors affecting tax rate are: the ratio of expenditures of the private sector to the public sector, the ratio of investment in the public sector to the private sector, depreciation rate, and rate of time preference, elasticity of production function to the investment in private sector and public sector and technical progress. Among the above factors, the ratio of expenditures of the private sector to the public sector has a negative effect and the ratio of Investment in the public sector to the private sector has a Positive effect on optimal tax rate.