Analysis of Factors Affecting Iran’s Tax Performance Using Provincial Panel Data (2001-2009)

Factors affecting the tax ratio and its increase have been always of importance to statesmen and policymakers. According to the Fifth Economic Development Plan Act, to cut the Iranian government’s dependence on oil and gas revenues, the ratio of tax to the gross domestic product (GDP) should be at least 10 percent by the end of the plan (2015). Since result of study of panel data is more creditable than time series regression, provincial panel data have been used in this study. Findings obtained through panel data model indicate that increased ratio of the added value of service, mine, industry, and construction sectors to GDP, will increase tax ratio. In addition, tax ratio increases with any parallel rise in Gini coefficient for urban areas. Coefficient of all variables is meaningful at 95-percent level. There is a direct relationship between Gini coefficient and tax ratio which confirms Kuznets theory in Iran. Therefore, the more unequal is income distribution (the higher Gini coefficient is), there will be higher tax capacity and tax ratio can increase more easily