Investigating the Relationship between Green Tax Reforms and Shadow Economy Using a CGE Model - A Case Study in Iran

I n the past decades, the effect of different tax amendments on various economic issues has been studied. The majority of these studies have avoided considering shadow economy as part of the calculation and analysis, and an issue, which has received little attention, is the relationship between green tax reforms and shadow economy, as for informal labor, which is well-connected to unemployment rate, and, consequently, welfare. On this basis, in order to make the CGE model more compatible with the real world, this relationship has been investigated in a mathematical model. Finally, in order to perform the calculations, the presented model has been implemented and analyzed on social accounting matrix (SAM) of Iran. Computational results show impact of change in labor tax and capital tax on environment (CO2 emission), GDP, social welfare and unemployment. Based on presented analysis, change in shadow economy has a high impact on unemployment rate and informal labor. Sensitivity analysis on size of shadow economy shows that reducing CO2 emissions, bigger shadow economy leads to higher social welfare. The results indicate the efficiency of the model.