According to John M. Keynes, the adoption of fiscal policy, i.e., taxation and government spending, can effectively stimulate economic growth and smooth out the economic cycles of boom and bust. Monetarists believe otherwise. They propose the adoption of monetarist policies in which control of the money supply and the level of interest rate play crucial roles in achieving economic growth and taming inflation. In reality, however, almost all governments use a mixture of both policies, in different proportions, to achieve their economic aims.

In Iran, there have been numerous attempts by the government to confront the economic problems and harmonize its policies to become more competitive and have a say in the global economy.

To this end the new foreign investment law has been welcomed by the international community and it is hoped that it will enhance hard currency investment. Transparency and sound fiscal and monetary policies will lure more international investment and business to Iran.

The recent reform of the direct taxation law is going to have a major impact on domestic and international investment in Iran.

The elimination of tax exemption for some of the state agencies and organizations will definitely promote a competitive atmosphere among private companies.

The inclusion of the special tax exemption provision for manufacturing units in underdeveloped regions and greater transparency in drawing up financial statements plus increasing the exemption from basic rate tax will all contribute strongly to its effectiveness.

The rate reduction to 30% from 54% for industrial concerns is a major incentive for both domestic and international investors to invest in Iran.

However, a more serious and effective tax reform should get rid of tax exemptions for the state monopolies.

If the above tax reforms are coupled with the implementation of tax evasion provisions, together with the new foreign investment law, domestic and international investments in Iran will certainly create more jobs, increase competitiveness in international markets and lead to higher economic growth.