Analysis of the Tax on Banking term Deposits under the Condition of Budget Deficit

Document Type : Original Article

Authors

1 Associate Professor of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

2 PhD Candidate in Economics, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

10.48308/jem.2024.236142.1927

Abstract

In order to reduce speculative behavior in Iran's economy, the Capital Gains Tax Law was approved in the Islamic Parliament in 2023. According to Keynes' theory of liquidity preference, bank term deposits are an example of the speculative motive for holding money. Therefore, increasing the share of bank term deposits in Iran's economy is known as a potential capacity in the occurrence of speculative behavior in the economy. On the other hand, the government has faced financial instability as a result of the sanction, which can lead to stagnation and chronic inflation in the economy. Now the question is, can a tax on such deposits be a suitable solution for financing the government and controlling inflation in Iran's economy? This research aims to explore the impact of the tax shock on the amount of bank term deposits as a new tax base in the event of budget deficit in the framework of a New Keynesian Dynamic Stochastic General Equilibrium Model. The findings indicate that implementing this tax as a shock can lead to a decrease in the government budget deficit and inflation while it can increase consumption. Therefore, it can be an effective tool for decreasing budget deficit and inflation.

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References

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