A Study on the Effect of Tax Policies on Private sector Investment in Iran

Emphasizing on investment as an engine of economic growth and economic development always has a special place among theorists, planners and economic policy makers. So, developed countries owe their progress due to the increasingly expansion and accumulation of their investments. In this direction, governments by having precise knowledge about the behavior of investors on policy instruments specially taxes have been remarkable role on the process of capital deepening and formation in the way of economic recovery, progress and growth. In this paper, according to the key role of government on capital formation, the determinants of investors’ behavior in a dynamic model are investigated. The data used in the study covers the period from 1959 to 2012. Using a vector error correction model, the influences of each determinant on investment in the Iranian economy is estimated. The results of this estimation indicate that taxes have reverse correlation with investment in the long run dynamics, and investors are sensitive to the government s tax policies. Also, an increase in domestic production (or domestic demand) and imported capital goods have significantly positive impact on private investment. In addition, the impact of interest rate and inflation on private investment are negative.

Keywords:

Private Investment , Tax Policies and Co-integration