Institutional Analysis of the Establishment of the Individual Income Tax System in Iran Using the IAD Framework

Establishing the Individual Income Tax System can play a pivotal role in tax reform in the country. This tax system has never been implemented in Iran. The problem with the process of establishing PIT is, the uncertainty about the characteristics of the actors, their pattern of interaction, the amount of information and access, and the institutional and exogenous factors that govern the decisions made in this regard. In this study, the Institutional Economics Approach was chosen as a solution to this dilemma and the Institutional Analysis and Development framework (IAD) was used as the basis for its analysis. The findings of the study indicate that high-earning and low-earning actors differ greatly in terms of awareness, growth, access to decision-making centers, and action at the policy-making level. The present study predicts that under normal circumstances this tax system will not be approved and implemented unless exogenous factors, such as the pressure of sanctions, the demands of social activists, and the changing political climate of parliament and government, trigger a push for the enforcement of such a system.