Published Papers
Large-scale Affordable Housing Construction and Public Goods Provision: Evidence from Iran, with Saeed Tajrishy, 2023, Journal of Economic Geography (accepted)
Affordable housing projects may affect neighboring property values. Negative spillovers are more likely in developing countries because governments may fail to provide complementary infrastructures such as schools. We study one of the world's largest affordable housing projects, the Mehr housing project in Iran, which facilitated the construction of 2 million affordable apartments. Using the universe of house transactions in 19 large cities, we employ a difference-in-differences methodology to estimate the causal impact of Mehr on neighboring properties. Results show nearby housing prices fall by 11 percent. This negative effect fades away in neighborhoods that saw a proportionate expansion of school.
The Double Dividend of a Joint Tariff and VAT Reform: Evidence from Iran, with Kowsar Yousefi, World Bank Economic Review, (2023).
This paper provides empirical evidence on a novel complementarity between VAT and trade taxes. Downstream domestic firms require VAT receipts from importers to claim VAT on purchases, increasing incentives for honest reporting of imports. Trade gap, the difference between mirror and domestic trade reports in Iran at 6-digit HS disaggregation, is used to measure this complementarity. Iran introduced VAT in 2008 and, since then, has increased its rate from 3 to 9 percent. Difference-in-differences estimates show that a 1 percentage point increase in the VAT rate reduces the trade gap by about 2 percent. Consistent with the compliance mechanisms for VAT, a smaller effect for consumer products that have a shorter value chain is observed. Findings suggest that replacing tariffs with VAT results in a double dividend. Tax revenue might increase due to better tariff compliance and a broader VAT base.
What One Hundred Million Transactions Tell Us about Demand Elasticity of Gasoline?, with M.H. Rahmati and A.H. Tavakoli, Empirical Economics, 62, 2693-2711 (2022).
The price elasticity of gasoline demand is a key parameter in evaluation of various policy options. However, most of the literature uses aggregate data to identify this elasticity. Temporal and spatial aggregation make elasticity estimates unreliable. We employ a unique dataset of all gasoline transactions in Iran during a four-month period around an unexpected exogenous price change to identify price elasticity. After controlling for date and individual fixed effects we estimate a robust significant price elasticity of -0.127. Aggregation of the same data by week, month, and city yields an estimate of -0.3 indicating a significant bias in earlier studies. We also identify a significant withholding behavior by consumers in response to anticipated price changes.
Water-Energy Nexus-Based Economic Optimization of Water Supply Projects, with Hamed Hamzekhani and S Jamshid Mousavi, Journal of Water Resources Planning and Management, 147(8), 2021.
This paper adopts the Water-Energy nexus approach to investigate the economic impacts of costly energy-intensive water supply projects. An integrated modeling framework is proposed for regional-scale management of water and energy resources that incorporates the Energy Input-Output Analysis (EIOA) within a hybrid Genetic Algorithm-Linear Programming (GA-LP) optimization model maximizing the GDP. As a general framework, the proposed approach captures the trade-offs between water and energy in the technologies used for the production of other goods and services than water and energy. The framework is used to evaluate the economic gains of the non-local water supply projects, including water transfer and desalination, in the Kerman province of Iran where water shortages loom. The model determines the optimal allocation of newly supplied water to the economic sectors given energy and water prices, the structure of production sectors, local resource constraints, and the economic sectors' production capacities. The production capacities of all sectors, except water and energy, are exogenously expanded by 50 percent, in line with the projected population growth, over 25 years (project's lifetime). Results reveal that in the absence of water supply projects, Kerman's GDP grows at 35 percent over 25 years. Meanwhile, the implementation of water supply projects increases Kerman's economic growth by 5 percent but requires around 2 TWh of additional electricity and 735 MCM of additional water. Results also indicate under the optimal condition found, the GDP is influenced more by water allocation policies and less by the amount of water supplied from the nonlocal water source, which highlights the significance of non-structural measures.
The Impact of Short-term Exposure to Ambient Air Pollution on Test Scores in Iran, with N. Amanzadeh and S.F. Fatemi Ardestani, Population and Environment, 41, 253-285 (2020).
Air pollution in urban centers has become a key public concern around the world. Apart from its adverse health effects, air pollution could impact less visible outcomes like cognitive performance. Standardized tests are a fixture of all education settings that are susceptible to pollution shocks because they require high cognitive function. Given that test scores are widely used as signals by parents, employers, and education institutions, pollution shocks could render tests unfair and unreliable. In this paper, we combine pollution data with test scores from a large testing institution in Iran between 2012 and 2017 to quantify the impact of short-term exposure to air pollution on test performance. We use visibility as an instrument for exposure to PM10 and PM2.5 on the exam day in a student fixed effects specification to study the impact of PM. We find that a one standard deviation increase in PM10 and PM2.5 is respectively associated with 0.047 and 0.029 of a standard deviation decrease in test scores. The effect is larger for males and analytical subjects. The results are robust to inclusion of other pollutants and several specification checks.
Import tax evasion and avoidance: Evidence from Iran, with K. Yousefi and H. Pilvar, The Quarterly Review of Economics and Finance, 75, 31-39 (2020).
While import taxes are easier to levy, there is increasingly more evidence that importers engage in trade tax evasion. The literature uses, trade gap, the difference between reports from the two ends of a trade link, as a proxy for illegal imports. Many papers have found a robust positive correlation between import tax rates and the trade gap. However, like any other tax, importers could avoid paying import duties through legal provisions. Such opportunities are abundant in Iran and could impose a downward bias on the evasion elasticity estimates. Using disaggregated trade reports from 21 partners and Iran Customs Administration from 2004 to 2013, we show three results. First, a one-percentage-point increase in the tax rate is significantly associated with a 1.8% increase in the trade gap. But once we control for avoidance, this effect increases to 2.5%. Second, there is a significant negative correlation between our avoidance proxy and the trade gap. Third, we document that a one-percentage-point increase in tariff rates is associated with a 0.6 percentage-point increase in tariff revenue. Assuming an inelastic import demand, the results suggest avoidance plays a greater role than evasion in tariff revenue reduction in response to an increase in tax rates. This finding indicates that the government could increase tariff revenue by cutting legal loopholes. Results are robust to many specification tests.
The externality from communal metering of residential water: The case of Tehran, with M.H. Rahmati and N. Taheri, Water Resources and Economics, 23, 53-58 (2018).
Many countries use a single water meter for multiple units within a building. This creates a cost externality where the cost of water consumed is spread over all units. Using administrative data from Tehran Water and Wastewater Co. for 2013 and 2014, we find an increase in the number of units on a communal meter on average increases per unit use by 0.4%. Estimation at different levels of units reveals that almost all communal meters have higher per unit water use. The results suggest that removing this externality could save 2.7% water consumption in our sample.
Working Papers
Stimulus Effect of a Value-added Tax Cut: Evidence from the UK Tax Returns Data, (August 2017) [Manuscript]
In response to the great recession of 2008, the UK government used a temporary value-added tax rate reduction as its main stimulus policy. From 1 December 2008 to 31 December 2009, the standard-rate of value-added tax was reduced from 17.5 to 15 percent while the existing zero-rate did not change. I use the universe of VAT returns between 2002q1 to 2010q4 to compare changes in sales growth for standard-rated traders to that of zero-rated traders (difference-in-differences). I find an insignificant small impact on sales growth once I allow for heterogeneous effects of the recession either by a) relying solely on post-recession observations or b) controlling for two-digit sector specific recession impacts. Subject to full pass through of the rate cut to consumer prices, a zero effect on sales growth is reflective of a proportionate increase in sales quantity (unit elasticity).
The Long Run Educational Impact of Iran-Iraq War, (July 2017) [Manuscript] [Codes] [Data]
Children exposed to wars and other catastrophic events could suffer long lasting effects if their human capital accumulation is disrupted. In this paper, I use Iran Population Census 2006 to estimate the long run educational attainment impact of Iran-Iraq War (1980-1988). By comparing cohorts exposed to war at various points in life in war provinces to other cohorts, I find the probability of finishing high school is reduced by 8.8 percentage points for early life exposure to war. The impact of later life war exposure, i.e. during primary school, is smaller and becomes insignificant in some cases.
Optimization Frictions in the Choice of UK Flat Rate Scheme of VAT, July 2014 [Manuscript]
UK VAT offers an optional Flat Rate Scheme (FRS) for small businesses to reduce compliance costs. FRS replaces VAT with a turnover tax and creates tax saving opportunities for some traders. Using the universe of VAT returns between 2004-05 and 2010-11 financial years I find 26 percent of eligible VAT traders gain from FRS but only 3 percent join the scheme subsequently. This is despite high persistence and non-negligible size of FRS gains. FRS gainers who remain on VAT in the following year, have 70 percent probability of being an FRS gainer and the median gainer continue to save 10 percent on VAT payments upon joining. I use date of VAT registration and registered postcode district of traders to show traders registering later and those registering in high FRS regions are more likely to join FRS. These patterns favor broadly defined information frictions as potential hurdles for joining FRS.