Conference Paper
Rewarding Nominal Growth: Unintended Impacts of Tax Cuts in Iran
No.
ERF32AC_247
Publisher
ERF
Date
May, 2026
Topic
E. Macroeconomics and Monetary Economics
We study a policy in Iran that grants tax cuts to firms experiencing growth above a specified threshold. Using the universe of Iranian corporate tax returns from 2013 to 2022, we employ the bunching method and find that firms increase their reported taxable income growth by 1.17 percentage points for every 1 percentage point reduction in the corporate tax rate. Additionally, event-study results show that this growth corresponds with a reduction in the share of reported exemptions by firms. Evidence suggests that the increase in reported growth is driven by over-reporting of income and inter-temporal income shifting to maximize tax reductions. We also find coordinated bunching among firms with ownership links, implying that information about tax incentives spreads through business networks.