Measuring Potential Value Added Tax Capacity in Iran Using Multiregional Input-Output Model

Document Type : Research Paper

Author

Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran.

Abstract

The main aim of the present paper is to measure the potential value-added tax (VAT) capacity in Iran using the multiregional input-output model (MIOM) to answer the following question: “how much indirect value-added tax is potentially generated in one region in order to satisfy the production of other regions?” Applying Leontief’s final demand-to-output is not suitable and therefore, Pasinetti’s parsimonious production-to-production approach is utilized. For this purpose, we have used a MIOM covering 9 regions for the year 2016. Based on the existing conventional regional theory, we expect that larger regions have a tendency to contribute more value-added to other regions. Surprisingly, the overall results confirm the prevailing theory as follows: for example, region 6 (the largest region) generates 5.3% of the total value added of region 1, whereas region 7 (the smallest region) is responsible for 1.7% of the total value added of region 1. Similar results have been found on the impact of regions 6 and 7 on the added value of other regions. In addition, based on the logic of VAT system, it is expected that a larger region has a higher impact on VAT capacity in other regions. The overall findings relatively confirm the theoretical prediction as follows: the impact of region 6 on VAT capacity of other regions is 4-12 times more than the impact of the smallest region on the potential VAT capacity of other regions.

Keywords


Aguirre, C. A., & Parthasarathi, Sh. (1988). The Mexican value-added tax (VAT):
Methodology for calculating the base. National Tax Journal. 41(2), 543-554.
Banouei, A. A., Sherkat, A., & Fahimi, B. (2019). The relationship between
multiregional input-output table and spatial economy in the new economic
geography theory. Economic Development Policy. 7(1), 107-132.
Banouei, A. A. (2018). Calculating multiregional input-output table and its
application; A case study of Tehran-Alborz and other regions” deputy of
planning, urban development and Councils’s Affairs of Tehran municipality.
Bazazan, F., Banouei, A. A., & Karami, M. (2007). The modern location quotient
function, spatial dimension, and regional input-output coefficients: The case
study of Tehran province. Iranian Economic Research. 31, 27-53.
Bovard, A., & Nekoamal Kermani, M. (2017). Determine the income gap with
respect to the income capacity of value added tax in Iran, during the five year
period 2008 to 2015. Journal of Tax Research. 35, 37-58.
Boero, R., Edwards, B. K., & Rivera, M. K. (2018). Regional input-output tables
and trade flows: An integrated and interregional non-survey approach.
Regional Studies. 52(2), 225-238.
Dashtban, M., Tofigh, F., HadiZenooz, B., & Peykarjoo, K. (2018). Spillover
effects of expanding industries in Tehran province in neighboring provinces
(interregional input-output table approach). Financial Economics. 12(42),
149-180.
Dietzenbacher, E., & Vander Linden, J. A. (1997). Sectoral and spatial linkages
in the EC production structure. Journal of Regional Science. 37(2), 235- 257.
Dietzenbacher, E., Van Der Linden, J. A., & Steenge, A. E. (1993). The regional
extraction method: EC input-output comparisons. Economic System
Research. 5(2), 185-206.
Ebrill, L., Keen, M., Bodin, J. P., & Summers, V. (2001). The modern VAT.
International Monetary Fund.
Ghiasvand, A., & Movagharisadat Mahalle, R. (2011). Tax revenue estimation
resulting from value added tax implementation law in Iran. Journal of
Economic Research. 11(3), 141-159.
Heimler, A. (1991). Linkages and verticalIntegration in Chinese economy. The
Review of Economics and Statistics. 73(2), 261-267.
Hutton, E. (2017). The revenue administration—gap analysis program: Model and
methodology for value-added tax gap estimation. International Monetary
Fund. Retrieved from https://www.imf.org/en/Publications/TNM/Issues/201
 7/04/07/The-Revenue-AdministrationGap-Analysis-Program-Model-andMethodology-for-Value-Added-Tax-Gap-44715.
Khaleghi Rekhne, Z., Zahedmehr, A., & Amouri, M. (2012). Case study of
estimating VAT base by using input-output table. Tax Journal. 20(15), 51-
72.