Measuring and analyzing the relationship between tax and private consumption spending in Iraq after 2004 using the SVAR model

Abstract

The research aims to measure and analyze the relationship between tax and private consumer spending in Iraq for the period(2004-2020)using the SVAR model. The research is based on the hypothesis that there is an inverse relationship between tax and private consumer spending in Iraq. The research concluded that there is an inverse relationship between tax and private consumer spending in Iraq. In addition, increasing taxes by(1%)will lead to a decrease in consumer spending by(0.12%)as a result of consumption relying on relative income(the ratio of individuals' income to the income of others)and thus the dependence of household spending on the spending of neighbouring families due to the imitation and simulation factor due to their influence on the environment or social environment. When taxes increase individuals tend to maintain the same or similar consumption pattern even with a decrease in income, i.e. spending the entire income on consumption or even borrowing in order not to reduce their social value. The research recommends the necessity of studying the possibility of replacing taxes imposed on private consumer spending with value-added taxes or sales taxes, taking into consideration basic goods and services that primarily affect low-income earners, with the necessity of imposing taxes that are proportionate to the taxpayer's tax base. In addition, making the tax system adopt multiple objectives such as revenue and tax justice, while providing flexibility for this to obtain the required response. This will provide the possibility of reforming this system by the requirements of general economic policy and the changes that may occur, through a periodic review of all legislative, economic and technical aspects to issue a new income tax law to evaluate the performance of the tax system in Iraq