Vietnam’s environment protection tax: Possible impacts and incidence

Abstract

This paper predicts economic and environmental impacts and incidence, in short term and in long tem, of the implementation of Law on Environment Protection Tax (EPT) recently promulgated by the National Assembly and coming into force by the beginning of 20121. The forecasts result from simulation scenarios run on an Applied General Equilibrium (AGE) model for the Vietnamese economy, using General Equilibrium Modeling Software (GEMPACK). Depending on the different assumptions about factors’ mobility, the numerical results of simulations show a relatively large short-run decline in the GDP growth rate, and smaller declines in the long run. In general, following the model results it seems difficult to expect that application of the EPT would directly bring positive economic effects2. The benefits of the EPT should be drawn from that the natural environment is improved and therefore the quality of life would be better. The simulation results also emphasize the necessity of gov- ernment accompanying policies and measures, such as use/ redistribute the EPT revenues in different programs aiming to improve the natural environment and to assist the strong- ly energy- dependent industries, to help the seriously suffering households. Our further research plan is precisely to run some model simulations on possible impacts of such kind of macro policies.