Impacts of higher tobacco tax on output and employment in Vietnam

Abstract

PurposeThe purpose of this study was to evaluate how higher tax on tobacco would influence output and employment in Vietnam.Design/methodology/approachThe authors used micro-simulation techniques proposed by Walbeeck (2010). Both national data (from Input–Output Table) and household data (Vietnam Household Living Standard Survey) were utilized.FindingsThe results showed that any increase in the excise tax for tobacco would have positive net impacts on both national output and employment. The tobacco industry would not be significantly affected due to its small contribution to national economy and employment. More importantly, money released from reduced tobacco consumption would be reallocated to other goods and services, and thus outputs and jobs in nontobacco sectors would increase.Research limitations/implicationsThe key limitation of this study was due to unavailability of updated data, especially Input–Output Table as well as household living standard survey.Practical implicationsThis study concluded that government should increase tax on cigarette along with a well-planned roadmap to avoid unexpected consequences on income and employment of laborers in this sector.Originality/valueThis study replicated a popular approach in order to verify an important government policy (i.e. effect of tax on tobacco on output and employment) under Vietnamese context.