Fiscal decentralization and income convergence: evidence from Vietnam

Abstract

The question of regional per-capita income convergence has been widely investigated theoretically and empirically. This study reviews the relevant literature and considers the possible significance of fiscal decentralisation in the convergence process. Alternative indicators of fiscal decentralization are examined within a SDM model which also takes into account possible spatial interdependencies between neighbouring regions. The modelling suggests that fiscal decentralization does appear to play a significant role in the convergence process in Vietnam. Income inequality remains a challenging issue for policymakers to resolve, and if regional disparities can be reduced in part through fiscal decentralization, this is a significant finding for policy formulation.