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Vietnam's New Environmental Tax Law: What Will It Cost? Who Will Pay?


  • Coxhead, Ian

    (University of WI)

  • Chan, Nguyen Van

    (National Economics University, Hanoi)


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 & Chan, Nguyen Van, 2011. "Vietnam's New Environmental Tax Law: What Will It Cost? Who Will Pay?," Staff Paper Series 561, University of Wisconsin, Agricultural and Applied Economics.
  • Handle: RePEc:ecl:wisagr:561

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    References listed on IDEAS

    1. Phan, Diep & Coxhead, Ian, 2010. "Inter-provincial migration and inequality during Vietnam's transition," Journal of Development Economics, Elsevier, vol. 91(1), pages 100-112, January.
    2. Beghin, John C. & Roland-Holst, David & Van der Mensbrugghe, Dominique, 2002. "Trade and the Environment in General Equilibrium: Evidence from Developing Economies," Staff General Research Papers Archive 4090, Iowa State University, Department of Economics.
    3. Datta, Ashokankur, 2010. "The incidence of fuel taxation in India," Energy Economics, Elsevier, vol. 32(Supplemen), pages 26-33, September.
    4. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
    5. repec:reg:rpubli:205 is not listed on IDEAS
    6. Ian W.H. Parry & Hilary Sigman & Margaret Walls & Roberton C. Williams III, 2005. "The Incidence of Pollution Control Policies," NBER Working Papers 11438, National Bureau of Economic Research, Inc.
    7. Abbott, Philip & Bentzen, Jeanet & Tarp, Finn, 2009. "Trade and Development: Lessons from Vietnam's Past Trade Agreements," World Development, Elsevier, vol. 37(2), pages 341-353, February.
    8. Elobeid, Amani & Van der Mensbrugghe, Dominique & Dessus, Sebastien, 2002. "Outward Orientation, Growth, and the Environment in Vietnam," Staff General Research Papers Archive 4085, Iowa State University, Department of Economics.
    9. Arief Anshory Yusuf, 2008. "The Distributional Impact of Environmental Policy: The Case of Carbon Tax and Energy Pricing Reform in Indonesia," EEPSEA Research Report rr2008101, Economy and Environment Program for Southeast Asia (EEPSEA), revised Oct 2008.
    10. Fullerton, Don & Heutel, Garth, 2007. "The general equilibrium incidence of environmental taxes," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 571-591, April.
    11. World Bank, 2010. "World Development Report 2010," World Bank Publications, The World Bank, number 4387.
    12. Ian Coxhead, 2000. "Tax Reform and the Environment in Developing Economies: Is a Double Dividend Possible," Wisconsin-Madison Agricultural and Applied Economics Staff Papers 431, Wisconsin-Madison Agricultural and Applied Economics Department.
    13. Jensen, Henning Tarp & Tarp, Finn, 2007. "A Vietnam Social Accounting Matrix (SAM) for the Year 2003," MPRA Paper 29822, University Library of Munich, Germany.
    14. Cooper, Richard N., 2000. "Trade and the environment," Environment and Development Economics, Cambridge University Press, vol. 5(04), pages 483-529, October.
    15. Dirk Willenbockel, 2011. "Environmental Tax Reform in Vietnam: An Ex Ante General Equilibrium Assessment," EcoMod2011 3082, EcoMod.
    16. Sahn, David E. & Alderman, Harold, 1988. "The effects of human capital on wages, and the determinants of labor supply in a developing country," Journal of Development Economics, Elsevier, vol. 29(2), pages 157-183, September.
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    More about this item

    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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