The Welfare Effects of Increased Social Security on the Iranian Economy: CGE Approach

Abstract

The mutual dependence of economic growth and social security and achieving optimal rate of tax on private income require persistent coordination between macroeconomic policies and social welfare programs. To do this, we survey the welfare effects of various scenarios of the social security on Iranian economy. For this purpose, these scenarios have financed by increasing private income tax rate and simulated by use the computable general equilibrium model and GAMS software. The simulation results show that the GDP, as the main indicator of economic welfare, will increase in all of these scenarios. Among these scenarios, a 70 percent increase in in income tax rate has highest effects on the GDP. Consequently, this scenario is introduced as the optimizing income tax rate in the Iranian economy. In addition, the overall results of this study indicate that the sudden change in tax rates is better than a gradual change in view of private sector.

Keywords

• income tax
• social security
• economic welfare
• iran