Program and Development Research

Program and Development Research

The Impact of Eliminating Tax-Exempt Interest Income from Time Deposits on the Real Estate Market, Exchange Rate, and Household Welfare Approach: Financial Computable General Equilibrium (FCGE)

Document Type : Original Article

Authors
yeganeh Mosavi Jahromi 1
Farhad Khodadad Kashi 2
Sakineh Tarighi Sarkhab 3
1  Professor, Department of Economics, Payam Noor University, Tehran, Iran. (Corresponding Author).
2 Professor, Department of Economics, Payam Noor University, Tehran, Iran.
3 PhD Candidate in Economics, Payam Noor University, Tehran.
10.22034/pbr.2025.470189.1441
Abstract
This study investigates the effects of imposing a tax on interest income derived from time deposits on the real sector of the economy, with particular attention to household welfare and the construction and real estate sectors. Utilizing a Financial Computable General Equilibrium (FCGE) model, the analysis is based on data from the 1999 Social Accounting Matrix (SAM) published by the Central Bank of Iran. The matrix classifies production activities and goods into eight categories, production factors into three groups (labor, capital, and mixed input), and economic agents into six groups: households, government, oil and gas, financial institutions, non-financial institutions, and the external sector. Investment is divided into two categories: construction and real estate, and non-construction and real estate.
The study aims to explore the broader economic implications of the tax reform, specifically focusing on the real estate market, exchange rate dynamics, and household welfare, while incorporating the interrelationships between these variables within an economy-wide general equilibrium framework. The findings are expected to provide insights into how such a tax policy would affect key sectors of the economy and the overall welfare of households. The results of the model simulation show that imposing a 10% tax on interest income from time deposit accounts results in a 1.24% decrease in total savings and a 2.62% increase in total consumption. Demand for construction and real estate increases by 0.22%, while the exchange rate decreases by 1.4%. In terms of household welfare, the utility function suggests a 0.35% decline, despite a 0.92% increase in household income. This decline in welfare is primarily attributed to a nearly 2% increase in the general price index of goods, which offsets the benefits of the higher income, leading to reduced overall satisfaction.
Keywords
Tax on saving deposit interest
Real estate sectors
Financial computable general equilibrium (FCGE)
Save
Household satisfaction
Financial social accounting matrix (FSAM)

Subjects

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Program and Development Research
Volume 5, Issue 4 - Serial Number 20
Winter 2025
Pages 145-190