Fiscal instruments and emission reduction goals: An impact analysis of environmental taxation in Vietnam

Abstract

Climate change, largely driven by the accumulation of greenhouse gases most notably carbon dioxide (CO₂)- poses a formidable obstacle to achieving global sustainable development objectives. As a fiscal tool, environmental taxation plays a vital role in internalizing environmental externalities into production costs in accordance with the “polluter pays” principle. It also fosters environmentally responsible economic behavior. This study undertakes a quantitative assessment of how environmental tax policy influences CO₂ emissions in Vietnam from 2001 to 2023, employing the Vector Autoregression (VAR) and Error Correction Model (ECM) methodologies. The empirical evidence reveals that environmental taxes exert a statistically significant and negative effect on CO₂ emissions, both in the short and long term. These findings support the green dividend hypothesis and align with established literature. Based on these outcomes, the study suggests several policy recommendations to enhance the design and implementation of environmental taxation, promote the transition to clean energy, and better align environmental policies with strategies for green economic development in Vietnam.