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Evaluating Tax Reform in Vietnam Using General Equilibrium Methods

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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.

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Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 9906.

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Date of creation: Apr 1999
Handle: RePEc:uwo:uwowop:9906
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Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2

Phone: 519-661-2111 Ext.85244
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  1. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 74-79, January.
  2. Bhattarai, Keshab & Ghosh, Madanmohan & Whalley, John, 1999. "On some properties of a trade closure widely used in numerical modelling," Economics Letters, Elsevier, vol. 62(1), pages 13-21, January.
  3. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 112-117, January.
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