Fiscal decentralisation in Vietnam: lessons from selected Asian nations

Abstract

In this paper, fiscal decentralisation in Vietnam is examined using a new fiscal decentralisation index, which accounts for both the fiscal autonomy and fiscal importance of subnational governments as developed in the work by D. Vo (Fiscal decentralisation indices: a comparison of two approaches. Rivista di diritto finanziario e scienza delle finanze LXVII, 3 (I), 2008, 295–323). The degree of fiscal decentralisation in Vietnam and China is then compared to that of three selected ASEAN nations, namely Indonesia, the Philippines and Thailand. This is intended that some policy implications from selected ASEAN nations and China's fiscal and economic experience are drawn for Vietnam.

Keywords:

• fiscal autonomy
• fiscal importance
• fiscal decentralisation index
• Vietnam
• China
• ASEAN countries

JEL classifications:

• H77
• N15

Acknowledgements

I am greatly indebted to Michael McLure and Kenneth Clements for the support and constructive comments they have provided during the writing of this paper. I acknowledge financial assistance from an International Postgraduate Research Scholarship from the Australian Government, Postgraduate Award from The University of Western Australia and The School of Economics and Commerce, UWA. The views expressed herein are those of the author and do not necessarily represent those of the supporting organisations. All remaining errors are mine. Dr Duc Hong Vo, formerly at the University of Western Australia, is currently working at Economic Regulation Authority, Perth, Australia.

Notes

^a turnover tax before 1999;

^b profit tax before 1999;

^c abolished in 2004;

∗no information available. Source: Author's review of laws.

1. There are two exceptions. Scotto's index is the index par excellence for the ‘fiscal importance’ of decentralisation. This alone makes it superior to many indices that have also emphasised fiscal importance. For details of this index together with its strengths and weaknesses, see Vo (2008). The other exception is the study by Price and Garello (2003), of European countries, but this study relies heavily on the subjective assessments of fiscal scholars with expertise in the state of affairs in particular European countries. As such, the index developed from their study is not readily applied to other countries for accurate international comparisons.

2. Due to data limitation, SNGs' own-sourced revenue in the calculations excludes fiscal transfers from the national government, but it includes revenue from the shared tax with the national government.

3. For consistency of an international comparison in terms of fiscal autonomy and fiscal importance of subnational governments, as well as the degree of fiscal decentralisation across years, we use fiscal data from the Government Finance Statistics yearbooks published by the IMF – the only systematic source of time series fiscal data.

4. The investigation for Indonesia and the Philippines is quite dated as available data discontinued in 1993 for Indonesia and in 1992 for the Philippines. This will limit the analysis of the contributions of these two countries to Vietnam's fiscal decentralisation.