An Estimation of the Tax Evasion by Tanzi Method and Analysis the Effect of Fiscal Instruments

In Iran’s economy, tax revenue has constructed a significant part of government’s financial resources in recent years; based on the Central Bank of Iran (CBI) in 2017, about 45% of the government’s financial resources were tax revenue. Considering different components of the government’s financial resources, factors such as oil sanctions, oil prices, oil sales, and tax evasion are the most crucial factors affecting government revenue in Iran’s economy. Thus, due to the significance of tax evasion as the most influential factor on government income, the present study has examined the effect of government total size and its components on tax evasion in Iran between 1979 and 2019 using the Autoregressive Distributed Lag model. According to the two examined models in the study, government’s total and current sizes have a direct (unfavorable) effect on tax evasion, while the government’s developmental size has an indirect (favorable) effect. Furthermore, based on both examined models, the Financial Depth Index and unemployment directly (unfavorably) affect tax evasion. Also, total, direct and indirect taxes have an unfavorable effect on tax evasion.