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Vietnam’s New Environmental Tax Law: What Will it Cost? Who Will Pay?

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  • Coxhead, Ian A.
  • Van Chan, Nguyen

Abstract

We examine the effects of a proposed environmental tax in a small open developing economy, using an applied general equilibrium model linked to a household survey database. The burden of the tax, applied primarily to fossil fuels, is passed forward by non-traded industries and backward by industries selling into the world market. It causes efficiency and competitiveness losses equivalent to those of a real exchange rate appreciation, and since export industries are in general highly labor-intensive, is regressive and thus poverty-increasing. The budget-neutral use of increased tax revenues to raise spending on anti-poverty programs can offset most of the losses of poor households, but does not create new jobs. The extent of overall losses and their distribution is sensitive to some parameters, such as labor supply response, about which little is currently known in a developing-country context.

Suggested Citation

  • Coxhead, Ian A. & Van Chan, Nguyen, 2011. "Vietnam’s New Environmental Tax Law: What Will it Cost? Who Will Pay?," Staff Papers 116704, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    • Handle: RePEc:ags:wisagr:116704
    DOI: 10.22004/ag.econ.116704
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    Keywords

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    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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