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Simulation of the Impacts of Value-Added-Tax Increases on Welfare and Poverty in Vietnam

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  • Nguyen, Cuong

Abstract

This study predicts the impact of increasing VAT on household welfare as measured by the average expenditure and poverty rate in Viet Nam. We forecast the impact of two scenarios of increasing VAT. Scenario 1 is to increase VAT by 1.2 times, i.e. increasing 5% VAT and 10% VAT to 6% and 12% VAT, respectively. Scenario 2 applies a common rate of 10% on all items, i.e., commodities subject to 5% tax can be taxed by a 10% rate. The results show that Scenario 1 has a stronger impact on households compared to Scenario 2. In particular, Scenario 1 reduces households' expenditure by 0.89%, while Scenario 2 decreases households’ expenditure by 0.32%. Under Scenario 1, the poverty rate is increased by 0.26 percentage points, while under Scenario 2, the poverty rate is increased by 0.22 percentage points. The number of poor people increases approximately by 240 and 202 thousand people in Scenarios 1 and 2, respectively. Regarding the impact on poverty, VAT only affects the near poor households. Better-off households are also affected, but this effect does not cause them fall into poverty.

Suggested Citation

  • Nguyen, Cuong, 2017. "Simulation of the Impacts of Value-Added-Tax Increases on Welfare and Poverty in Vietnam," MPRA Paper 93139, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:93139
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    References listed on IDEAS

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    1. Salanié, Bernard, 2011. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262016346, April.
    2. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
    3. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    4. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 215-215.
    5. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
    6. Brita Bye & Birger Strøm & Turid Åvitsland, 2012. "Welfare effects of VAT reforms: a general equilibrium analysis," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(3), pages 368-392, June.
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    Cited by:

    1. Yaru, Mohammed Aminu & Adisa-Ohiaka, Ubaydah, 2022. "Indirect Taxation and Poverty in Sub-Saharan Africa: An Empirical Evidence from Panel Data Analysis," African Journal of Economic Review, African Journal of Economic Review, vol. 10(5), December.

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    More about this item

    Keywords

    Value added tax; simulation; poverty; household expenditure; Vietnam;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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