Assessing the Iranian Fiscal Sustainability in Past and Future through Tax Side of the Economy

This paper, I have focused on the tax side of the fiscal policy to  investigate the past and future behavior of fiscal sustainability in Iran. To do so, I have employed two different forward-looking and backward-looking approaches. First, the backward-looking approach is the fiscal policy rule proposed by Daving & Leeper (۲۰۱۱). Precisely, this rule determines that whether the fiscal policy is active (unsustainable) or passive (sustainable). To estimate the fiscal policy rule, I have exploited Markov switching model (MSM) which examines the tax rate response to debt dynamics under multiple regimes. Second, the forward-looking approach is the modified Blanchard’s tax gap indicator (۱۹۹۰) for an oil-producing country. In fact, this indicator predicts the amount of tax adjustment required to stabilize the future amount of government’s debt back to its value in a particular base year. I have used time series data over the period spanning from ۱۹۹۳(Q۱) to ۲۰۱۳(Q۴).

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Keywords: Backward-Looking Approach ، Forward-Looking Approach ، Tax Gap Indicator ، Fiscal Policy Rule ، Markov Switching Model. JEL Classification: E۶۲ ، E۶۳