Local Governance: Impacts of Fiscal Decentralization on Government Size and Spending Composition in Vietnam

• Published in: Asian economic journal Vol. 33; no. 4; pp. 311 - 340
• Main Authors: Thanh, Su D., Canh, Nguyen P.
• Format: Journal Article
• Language: English
• Published: Melbourne John Wiley & Sons Australia, Ltd 01-12-2019; Blackwell Publishing Ltd
• Subjects: Decentralization; Economic theory; fiscal decentralization; Governance; Government size; government size and spending; Government spending; Local government; Panel data; public governance; spatial spillovers; Sustainable development; Vietnam
• ISSN: 1351-3958; 1467-8381
• DOI: 10.1111/asej.12189

The study provides an understanding of the impacts of fiscal decentralization and local governance on government size and spending composition. We use a balanced panel data set of 63 provinces of Vietnam over the 2006–2015 period. By estimating the spatial Durbin model, we find that local public spending and government size grow over time and have spatial spillovers. Fiscal decentralization significantly reduces public spending and government size, which supports the Leviathan hypothesis. More interestingly, combining local governance, the marginal spatial spillover effects of the fiscal decentralization on public spending and government size are intensified. Our findings imply that local governments should enhance interregional collaboration in fiscal management to limit duplicate public spending and promote regional sustainable development.