An Investigation on the Effect of Taxes on the Private Investor's Behavior: With an Emphasis on Tax Policy in the Fifth Development Plan

Emphasizing on investment as an engine of economic growth and economic development always has a special place among theorists, planners and economic policy makers. So, developed countries owe their progress due to the increasingly expansion and accumulation of their investments. In this direction, governments by having precise knowledge about the behavior of investors on policy instruments specially taxes have been remarkable role on the process of capital deepening and formation in the way of economic recovery, progress and growth.
In this paper, according to the key role of government on capital formation, the determinants of investors’ behavior in a dynamic model are investigated. Therefore, government is able to apply appropriate tax policies to provide suitable conditions for improving production level and growth rate during the fifth development plan.
The data used in the study covers the period from 1338 to 1386 (1959 to 2007). Using a vector error correction model, the influences of each determinant on investment in the Iranian economy is estimated. The results of this estimation indicate that taxes have reverse correlation with investment in the long run dynamics, and investors are sensitive to the government's tax policies. Also, an increase in domestic production (or domestic demand) and capital goods import have significantly positive impact on private investment. In addition, the impact of interest rate and inflation on private investment are negative.
Furthermore, tax purposes intended in the Fifth Development Plan is not along the way with the private sector capital accumulation. So, achieving the taxation goals set by the government during the fifth development plan will reduce investment notably. Therefore, it is appropriate that the government seriously revise the implementation of tax policies during the fifth development plan.