The Effect of Capital Gain Tax on Capital Formation, Financial Development and Economic Growth, Case Study of Iran

The effect of tax on economic activities is an important issue in public finance. The fact that the existing system may decrease the investment motivation and consequently decrease the future life style is a great crisis. In addition to, the effects of tax system on capital formation, it can affect financial development and economic growth. In this paper, by simultaneous equations system in GMM method, the impact of capital gain tax on the capital formation , financial development and economic growth in Iran will be studied in the period of 1970-2014. The results indicate that the capital gain tax growth rate, with three lags, increases the physical capital formation growth rate. Also, capital gain tax growth rate, with three lags, decreases the financial development growth rate and increases the economic growth rate. Also, the value of J statistic and value of chi-square statistic indicate that all the entered tool variables in simultaneous equation system are valid and all the patterns are estimated correctly.