Survey of Price Elasticity and Tax Collection Lag in Iran

Inflation decreases the actual tax revenues, if tax collection lag prolongs and tax system is inflexible (Tanzi hypothesis). In order to test Tanzi effect in Iran in short and long run seasonal data in 1981-2001 has been used and OLS and MLE have been applied. Results indicate that the lag length is almost 23 months and elasticity is more than unit (OLS). In MLE method, lag is 16 months and elasticities less than unit and with war dummy variable, the lag is10 months. In short-run, lag is estimated to be 18 months and, instead of increasing, inflation decreases the nominal tax revenues. Thus Tanzi effect in short run is stronger than long run in Iran’s economy.