Interest Pressures and Carbon Taxation: Evidence from Vietnam

Abstract

Many economies implement carbon taxation to reduce emissions, but some groups may influence government to change policy in their favour. How influential are these interest pressures? This paper proposes a new methodology to measure interest pressures, merging insights from preference, expenditure, lobbying cost, and corruption data with newly collected data on public and private pressures from Vietnam. I show that interest pressures can largely account for observed changes in carbon taxation and that government adopted inefficient carbon taxation as a result of those interest pressures. The findings highlight the necessity for efficient representative institutions, which allows firms (through associations) and households (residential groups) to lobby government and receive information about the policy. Results also submit that absent lobbying regulation, firms and other interest groups resort to informal linkages to influence government, suggesting the essence of improving regulation to promote transparency and equity in lobbying among interest groups. Lastly, results suggest that policy interdependencies matter and that governments may implement carbon taxation inefficiently if it cannot sufficiently address economic constraints resulting from other policies.