IDEAS home Printed from
   My bibliography  Save this paper

Environmental Tax Reform in Vietnam: An Ex Ante General Equilibrium Assessment


  • Dirk Willenbockel


Vietnam is planning to implement a new environmental tax law in 2012. The objective of the study is to provide a predictive quantitative evaluation of the impacts of the proposed draft environmental tax law of Vietnam on producer and user prices, sectoral output and employment, the commodity structure of demand, government tax revenue, CO2 emissions and household welfare.The assessment is based on a multisectoral computable general equilibrium (CGE) model calibrated to a new social accounting matrix that represents the current structure of the Vietnamese economy. The model distinguishes 33 production sectors, 20 household groups, and incorporates a sophisticated treatment of energy substitution in production, allowing substitution possibilities between liquid fuels and gas, coal, and electricity as well as technology switches towards less energy-intensive modes of production.• Among the various environmental taxes, the refined liquid fuels taxes will be the dominant source of tax revenue. • To have a discernible impact at all, the initial nominal tax rates for gasoline and diesel oil must be set at higher rates than the lower limit specified in the draft law, given that existing fees/surcharges at rates equal to these lower limits will be abolished once the environmental tax is implemented. The mere replacement of one tax by another with a different label but the same rate will have zero allocative effects • If the aim is to move tax rates in real terms gradually to the upper limit of the tax band, actual nominal rates need to rise at a rate higher than the rate of inflation, and once the nominal upper limit specified in the tax law is reached, this upper limit needs to be indexed to the rate of inflation in order to keep the real tax rate permanently at the upper level. • At the higher end of the proposed tax rate band, the environmental tax on fuels will have noticeable economy-wide repercussions. • The results suggest that CO2 emissions drop by around 2.3% under the Low and by 7.5% under the High tax rate scenario. • The tax-induced fuel price increase raises the production cost and output prices of other fuel-intensive sectors to some extent – notably for fishing and the transport sector. • The tax-induced rise in the cost of transport services spreads the impact of the fuel tax widely across the economy through its effect on transport margins for all non-service commodities. • At high levels of the tax rate, the environmental tax shifts a significant amount of purchasing power from households to the government. • As the additional tax revenue is spent on environmental protection measures (or other non-traded goods and services), the real exchange rate appreciates to some extent and real exports decline slightly relative to the no-eco-tax growth path. • Household welfare – narrowly defined as utility derived from the consumption of private goods – declines significantly across all households groups. However, this result does not take account of future welfare gains due to beneficial environmental impacts. • The analysis suggests that higher real tax rates for fuels should be phased in gradually according to a transparent pre-announced time schedule to allow firms to plan investments in fuel-efficient technologies. • There is a need for supportive measures to facilitate a smooth low-carbon technology transition. • The proposed tax rates raise the price of refined oil relative to coal. The relation of coal tax rates to fuel tax rates should be reconsidered to avoid potential unintended substitution effects from relatively clean refined fuels towards relatively “dirty” coal. • Taxation of HCFC, avoidable harmful chemical substances and plastic bags is good economic policy despite insignificant tax revenue and economy-wide repercussion effects. Convergence of tax revenue to zero should be seen as success of policy.

Suggested Citation

  • Dirk Willenbockel, 2011. "Environmental Tax Reform in Vietnam: An Ex Ante General Equilibrium Assessment," EcoMod2011 3082, EcoMod.
  • Handle: RePEc:ekd:002625:3082

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Robinson, Sherman & Yunez-Naude, Antonio & Hinojosa-Ojeda, Raul & Lewis, Jeffrey D. & Devarajan, Shantayanan, 1999. "From stylized to applied models:: Building multisector CGE models for policy analysis," The North American Journal of Economics and Finance, Elsevier, vol. 10(1), pages 5-38.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Jacqueline Cottrell & Damian Ludewig & Matthias Runkel & Kai Schlegelmilch & Florian Zerzawy, 2017. "Environmental tax reform in Asia and the Pacific," MPDD Working Paper Series WP/17/05, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    2. Alberto Gago & Xavier Labandeira & Xiral López Otero, 2014. "A Panorama on Energy Taxes and Green Tax Reforms," Hacienda Pública Española, IEF, vol. 208(1), pages 145-190, March.
    3. Undp, 2011. "HDR 2011 - Sustainability and Equity: A Better Future for All," Human Development Report (1990 to present), Human Development Report Office (HDRO), United Nations Development Programme (UNDP), number hdr2011, December.
    4. Coxhead, Ian & Wattanakuljarus, Anan & Nguyen, Chan V., 2013. "Are Carbon Taxes Good for the Poor? A General Equilibrium Analysis for Vietnam," World Development, Elsevier, vol. 51(C), pages 119-131.
    5. 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.

    More about this item


    Vietnam; Energy and environmental policy; General equilibrium modeling;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekd:002625:3082. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Theresa Leary). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.