Effects of Green Tax on Economic Growth and Welfare in Economy of Iran: a Dynamic Stochastic General Equilibrium Approach (DSGE)

The purpose of this paper is investigating the impact green taxes on economic growth and welfare for Iran's economy using New Keynesian small open dynamic stochastic general equilibrium model (DSGE). For this purpose, a DSGE model with different sectors of households, firms, government and foreign sectors of the Iranian economy is calibrated and simulated. According to the draft of sixth five development plan, four scenarios (0.5%, 1%, 1.5% and 2%) are considered for green tax rate. The results of simulation and analysis of impulse response functions of the model show that applying green tax affects on economic growth in the short and long term and also increases welfare in economy of Iran. Assuming different results of impact green taxes on economic growth and welfare determine that If the government's approach is attending to increasing the quality of the environment, emission reduction and accordingly sustainable development and welfare increasing thus it should accept economic output reduction. The results of all four scenarios show that economic output reduction and welfare increasing are very low.