Fiscal Decentralisation and Economic Growth across Provinces: New Evidence from Vietnam Using a Novel Measurement and Approach

Phuong Duy Nguyen, Duc Hong Vo, Chi Ho () and Anh Vo
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Phuong Duy Nguyen: Ho Chi Minh City Market Surveillance Department, Vietnam Directorate of Market Surveillance, Ho Chi Minh City 72400, Vietnam
Duc Hong Vo: Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 70000, Vietnam

JRFM, 2019, vol. 12, issue 3, 1-13

Abstract: Fiscal decentralisation has attracted great attention from governments, practitioners, and international institutions with the aims of enhancing economic growth in the last 5 decades. However, satisfactorily measuring the degree of fiscal decentralisation across countries has appeared to be problematic. In addition, the link between fiscal decentralisation and economic growth across provinces has largely been ignored, in particular for emerging markets such as Vietnam. As such, this study is conducted to determine the extent of fiscal decentralisation and to assess its impact on economic growth based on data from all 63 provinces of Vietnam in the period after the 2008 financial crisis. Instead of using traditional measures of fiscal decentralisation, the study uses the Fiscal Decentralisation Index (FDI) together with the two most important and inseparable components of the index, those being (i) the Fiscal Importance (FI) and (ii) the Fiscal Autonomy (FA). The Difference Generalised Method of Moments (DGMM) is utilised to correct for the potential problem of endogeneity between fiscal decentralisation and economic growth. Results show that the two indicators (FI and FDI) have a negative impact while FA has a positive impact on economic growth across provinces. On the ground of these empirical findings, implications for specific policies have emerged for Vietnam and other emerging markets on the extent of fiscal decentralisation, and its major determinants, which positively support economic growth in the future.

Keywords: fiscal autonomy; fiscal decentralisation; fiscal importance; DGMM; Vietnam (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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