The Impact of Trade Liberalization on Household Welfare in Vietnam

PEP MPIA Working Paper No. 2006-02

27 Pages Posted: 13 Apr 2006 Last revised: 11 Jul 2018

See all articles by Nguyen Chan

Nguyen Chan

affiliation not provided to SSRN

Tran Kim Dung

affiliation not provided to SSRN

Date Written: February 1, 2006

Abstract

This paper evaluates the efficiency and distributional effects of trade liberalization in the context of fiscal reform in Vietnam. The analysis is performed using a computable general equilibrium (CGE) model of the Vietnamese economy calibrated to late-1990s production and household data. It is a standard small open price taking economy model with CES nested demand and CES production functions. Results show that the efficiency gains (in term of aggregate welfare measure) from the combined tax and tariff reform are modest, but significant redistribution occurs among rich and poor household groups and between urban and rural populations. Careful analyses show that the sharpness of the redistribution falls as the country moves from only trade liberalization to combined tax and tariff reforms. Finally, additional simulations have been performed to make clearer the transmission mechanisms linking tariff policy to income distribution and household welfare. A key finding is that trade liberalization is pro-rich due essentially to the higher share of imported goods consumed by the rich.

Keywords: CGE model, counterfactual simulations, distributional effects, efficiency, household welfare, tariff, tax reform, trade liberalization, VAT, Vietnam

JEL Classification: R13, R20, C68, D58, D63

Suggested Citation

Chan, Nguyen and Dung, Tran Kim, The Impact of Trade Liberalization on Household Welfare in Vietnam (February 1, 2006). PEP MPIA Working Paper No. 2006-02, Available at SSRN: https://ssrn.com/abstract=888534 or http://dx.doi.org/10.2139/ssrn.888534

Nguyen Chan (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Tran Kim Dung

affiliation not provided to SSRN ( email )

No Address Available

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