The Study on the Effects of Direct and Indirect Taxes on Income Distribution Using the Generalized Method of Moments

Controlling of income inequality is one of the most important economic tasks of governments. In order to reduce the income inequality, governments should analyze people's incomes change. The distribution of income and efforts to improve it are the most important issues that governments face them. The income distribution is impacted by important factors. The aim of this study is to evaluate the effects of direct and indirect taxes on income distribution in 27 selected provinces of Iran during the period 2006-2015 with using Generalized Method of Moments (GMM) regression. The estimation results show that direct tax has a positive relationship with the Gini coefficient, which means that the income distribution situation becomes worse with an increase in the direct tax. Besides, the indirect tax has a negative relationship with the Gini coefficient, i.e., increase in the indirect tax lead to the income inequality become better. These findings emphasize the importance of the indirect tax. Moreover, GDP has a significant and negative effect on the income inequality. The consumer price index affect significantly and positively income inequality