The Impact of Inflation Targeting on Direct Taxes in Selected Countries: A Propensity Score Matching (PSM) Approach

Inflation targeting is a prevalent economic policy that is applied increasingly by countries. In addition, the effect of inflation targeting on macroeconomic variables is also been considered recently which mostly uses econometric models. One of the most important issues in this regard is that evaluating the effectiveness of inflation targeting usually confronted with bias in econometric models. In order to solve this problem, it is suggested the Propensity Score Matching Method (PSM) which has been used recently by economists. In this paper, it is tried to investigate the impact of inflation targeting on direct taxes and its components in a selected collection of two groups of oil importer and exporter countries by Propensity Score Matching Method (PSM) during 1990- 2016 years. The results show that adopting inflation targeting framework has a positive and significant effect on tax revenue in oil importer countries; whereas the impact of this policy in oil exporter countries is statistically insignificant and its direction is also ambiguous.

Keywords:

Inflation Targeting , Direct Tax , Propensity Score Matching , Monetary Policy , Policy Evaluation