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Evaluating Tax Reform in Vietnam Using General Equilibrium Methods

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Abstract

In this paper we use a general equilibrium model of Vietnam, calibrated to 1995 data, to analyze tax reform options for Vietnam. We focus on aggregate welfare impacts as well as welfare of household groups ranked by income. The main focus is on indirect tax reform (VAT), but we also examine reforms in the external sector given both the revenue importance of the tariff and the role of tariffs in protecting domestic industry. Our numerical general equilibrium model is used to perform a series of counterfactual experiments around the 1995 base data, and we use a small country assumption with Armington differentiation between imports and domestic products. Results indicate that there are gains to Vietnam from indirect tax reform, but the redistributive effects associated with these reforms are large and tend to swamp the aggregate effects. There is a sharp redistribution against those with lower income and who spend a significant fraction of their income on previously non-taxed products, and redistribution in favour of those spending larger fractions of their income on earlier high taxed products; especially the richer households. This theme of regressivity of indirect tax reform comes through even more strongly in the case of international trade based reforms involving the tariff than is the case for domestic sales tax reform.

Suggested Citation

  • Nguyen Chan & Madanmohan Ghosh & John Whalley, 1999. "Evaluating Tax Reform in Vietnam Using General Equilibrium Methods," University of Western Ontario, Departmental Research Report Series 9904, University of Western Ontario, Department of Economics.
  • Handle: RePEc:uwo:uwowop:9904
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    File URL: https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1343&context=economicsresrpt
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    Cited by:

    1. Tchoffo, Rodrigue & Nkemgha, Guivis & Paul, Tadzong, 2019. "Anglophone Crisis in Cameroon: Can indirect tax play a crucial role?," MPRA Paper 96457, University Library of Munich, Germany, revised 10 Oct 2019.
    2. Dunem, João E. Van & Arndt, Channing, 2006. "Confronting the Issue of the Elasticity of Customs Evasion in Mozambique: An Empirical Study," Conference papers 331494, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Keshab Bhattarai & Dung Thi Kim Nguyen & Chan Van Nguyen, 2019. "Impacts of Direct and Indirect Tax Reforms in Vietnam: A CGE Analysis," Economies, MDPI, vol. 7(2), pages 1-36, May.
    4. Ferri, Javier & Moltó, María Luisa & Uriel, Ezequiel, 2005. "Time Use, Computable General Equilibrium and Tax Policy Analysis," Conference papers 331322, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Ghosh, Madanmohan & Whalley, John, 2008. "State owned enterprises, shirking and trade liberalization," Economic Modelling, Elsevier, vol. 25(6), pages 1206-1215, November.
    6. Abbott, Philip & Bentzen, Jeanet & Huong, Thi Lan & Tarp, Finn, 2007. "A Critical Review of Studies on the Social and Economic Impacts of Vietnam’s International Economic Integration," MPRA Paper 29789, University Library of Munich, Germany.
    7. Jonathan Haughton & Nguyen The Quan & Nguyen Hoang Bao, 2006. "Tax Incidence in Vietnam," Asian Economic Journal, East Asian Economic Association, vol. 20(2), pages 217-239, June.
    8. Nielsen, Chantal Pohl, 2002. "Social accounting matrices for Vietnam 1996 and 1997," TMD discussion papers 86, International Food Policy Research Institute (IFPRI).

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