Evaluating the efficiency of the tax system and its impact on economic growth

The ratio of tax to gross domestic product (GDP) is one of the factors measuring the role of public section in economic activities of the country which indicates the tax system’s efforts in collecting tax considering the surplus (added) value in the economy. Such a ratio suggests the rate of economic activities liable for tax basis, and shows the amount of money that public section draws back from economic resources and injects into different economic sections for fulfilling tax goals. The present paper studies the ratio of real tax to gross domestic products and its effects on country’s economic growth during recent decades (1977-2012). The paper’s method of analysis is based on an endogenous growth model adapted to a country like Iran in which economic structure relies on exchange income of oil sale and Cashin pattern is used too. Findings and results of the paper suggest that increasing taxes affects negatively on country’s economic growth by 0.14 to 0.16 percent. The results also indicate that the ratio of tax to surplus (added) value of economic sections which are liable for paying tax comparing with other selected countries not only is not slight, but also is more regarding the economic facts of our country. Selected countries include developed, developing and oil exporter countries.