Evaluating the capacity of value-added tax in the regions using the multi-regional input-output model

In this paper, horizontal and vertical integration of value added and the interaction of regions on value added tax capacity are calculated using multi-regional input-output table of Tehran-Alborz and other regions in 2014. On the one hand, based on regional economics theory, a smaller region is expected to have the greater propensity to import and the greater vertical integration index. On the other hand, according to the logic of value added tax system, the larger region is anticipated to influence value added tax capacity of the other regions highly. The calculations of this paper are compatible with theoretical expectations. The results indicate that, firstly, the vertical integration indices for the provinces of Tehran, Alborz and other regions are 9.7%, 17.9% and 3.5%, respectively, and the province of Alborz which is the smallest region (3.4% of country’s GDP), has the greatest vertical integration index. Secondly, Alborz province has relatively modest effects on the value added capacity of Tehran and other regions, so that providing the intermediate demands of economic sectors of Alborz by Tehran and other regions can only increase 0.33% and 0.72% of tax capacity in 2 regions, respectively. However, the magnitude of the impact of other regions on Tehran and Alborz tax capacity is very significant and consequently creates a tax capacity of 8.5% and 14% in 2 mentioned provinces, respectively.