Estimation of the Tax Reaction Function in relation to the Combined Government Expenditure in Iran by the Markov Switching Method

The purpose of this paper is to use the Markov Switching method to estimate the tax Reaction function in relation to the composition of government expenditures in the Iranian economy over the period of 1983-2018. The tax revenue as a dependent variable is used in this research. The results of the Likelihood Ratioshowed that tax policy in Iran follows Markov's Switching system. Based on the results of the Markov Switching method, the entire study period in this study will be triple, the first period from 1983to 1988, which is a period with low tax revenues, and current expenditures and oil revenues during this period have a greater impact on tax revenue. And the increase in current expenditures and oil revenues during this period has reduced tax revenue. The second period from 1989 to 2012, which is a period with high tax revenues and the development expenditures during this period had the greatest impact on tax revenue and with increasing development costs in this period, tax revenue also increased. And the third period from 2012 to 2018, which has a low tax revenue and current expenditures and oil revenue have had the greatest impact on tax revenues during this period. Increasing the productivity has also increased tax revenue in all three periods