Title: Tax Policy and Household Businesses in Vietnam
Abstract: Small and informal businesses, businesses that are not registered to the government, constitute at least 30% of economic activity and 20% of the labor force in developing countries. Thus, there is a great potential for more tax revenue by taxing these businesses. However, tax can deter growth, which is consequential because it affects a large labor force. The matter is more complicated when tax enforcement is weak. Despite its importance, how tax affects small and informal businesses in developing countries is little understood.
This talk examines how tax rates affect household businesses in Vietnam, a type of small business. Our empirical strategy relies on a policy change in 2014 that drastically varied tax rates by industry and locality: some businesses experienced only marginal changes, while others experienced their tax rates tripling or quadrupling. We use censuses of Vietnamese household businesses to create two unique firm balanced panel datasets: the 2007-2012 panel data and the 2012-2017 panel data. The datasets allow us to track business registration status, employment, revenue, and tax payments of several hundred thousand firms over time. We run regressions with the firm, sector-year, and province-year fixed effects to control for time-invariant firm characteristics and sector’s and province’s time-variant shocks. We also use the 2007—2012 panel data for placebo tests. On average, we do not find any evidence for changes in business registration, employment, revenue, and tax payments as a result of the tax change. However, more-educated business owners responded more to the tax change than less-educated business owners. Specifically, when tax rates increased, more-educated owners were less likely to register their business and reduced employment more than less-educated owners. It might be because businesses with more-educated owners have higher abilities to pay and thus face more rigorous tax enforcement.
Bio: Anh Pham is an Assistant Professor at the Schar School of Policy and Government, George Mason University. She graduated from the University of California San Diego with a Ph.D. in Economics. Her research largely focuses on tax and fiscal policies in developing countries, particularly in Vietnam. She has also written on the differential effects of economic policies on women and racial minorities. Her work has been published in some of the leading economics journals, including the Journal of Development Economics.
Register now to attend: https://gmu.zoom.us/meeting/register/tJUkdOyprj4rGNYpDnOKYRDwr_5vkkiGykD-