The Impact of Oil Shocks on Iranian Tax Revenue Using the BVAR Model

Oil shocks, due to economic sanctions and income restrictions, have cost the government dearly in recent years, and it is important to examine their effects, especially in terms of declining tax revenues. Unfortunately, the imposition of various international sanctions on Iran in recent years and declining oil revenues due to declining oil exports on the one hand, as well as declining crude oil prices globally, have had devastating effects on macroeconomic variables such as taxes, government spending and economic growth. The purpose of this study is to investigate the effects of oil shocks on Iran's tax revenues using the Bayesian self-regression (BVAR) method and considering the variables of the total tax, indirect tax, direct tax, government expenditure, and GDP during the years 1991-2019. The results of the study of instantaneous reaction and analysis of variance functions show that oil revenue shocks, at a declining rate, have a positive effect on direct and indirect tax revenues, indicating the government's tendency to rely on tax revenues and expand tax bases. With declining oil revenues, if tax bases are not strengthened, tax revenues will fall and, assuming other conditions remain stable, will lead to a larger government budget deficit. The results indicate that the response of direct and indirect taxes to oil shocks is significant but small, that shows the poor performance of the country's tax system in response to oil developments. Therefore any decline in oil revenues, in addition to reducing tax revenues, also leads to a decrease in GDP and other government revenues; therefore, to increase tax revenues, fundamental measures and changes must be taken and strengthened within the government structure