Browse > Article
http://dx.doi.org/10.13106/jafeb.2020.vol7.no11.529

Fiscal Decentralization, Corruption, and Income Inequality: Evidence from Vietnam  

NGUYEN, Hung Thanh (School of Public Finance, University of Economics Ho Chi Minh City)
VO, Thuy Hoang Ngoc (Thu Dau Mot University)
LE, Duc Doan Minh (School of Accounting, University of Economics Ho Chi Minh City)
NGUYEN, Vu Thanh (Nguyen Tat Thanh University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.11, 2020 , pp. 529-540 More about this Journal
Abstract
The objective of this research paper is to study the simultaneous relationship between fiscal decentralization, corruption, and income inequality among Vietnamese provinces. We use a balanced panel data set of 63 provinces/cities in Vietnam in the period from 2011 to 2018. The study used 3SLS-GMM (Three Stage Least Squares - Generalized Method of Moments estimator) and GMM-HAC (Generalized Method of Moments - Heteroskedastic and Autocorrelation Consistent estimator). Empirical evidence shows a strong simultaneous relationship: increased corruption will increase regional income disparities, income inequality, and increase fiscal decentralization. In addition, the results also suggest that an increase in per-capita income will reduce the level of corruption, or better control corruption of each province. The degree of increase in income inequality, which reduces fiscal decentralization, is the same for trade liberalization. All demonstrate that there is a simultaneous relationship between fiscal decentralization, corruption, and income inequality. In a region of high public governance quality, fiscal decentralization positively effects its economic growth. This issue will indirectly increase income inequality between provinces within a country. Our findings imply that a country's fiscal decentralization strategy should be linked to improving corruption control and local governance effectiveness, indirectly improving income inequality between localities or regions.
Keywords
Decentralization; Corruption; Income Inequality; Economic Growth; Poverty;
Citations & Related Records
Times Cited By KSCI : 4  (Citation Analysis)
연도 인용수 순위
1 Ezcurra, R., & Rodriguez-Pose, A. (2014). Government quality and spatial inequality: A cross- country analysis, Environment and Planning A, 46(7), 1732-1753.   DOI
2 Gil, C., Pascual, P., & Rapun, M. (2004). Regional economic disparities and decentralization. Urban Studies, 41(1), 71-94.   DOI
3 Glaeser, E., Scheinkman, J., & Shleifer, A. (2003). The injustice of Inequality. Journal of Monetary Economics, 50, 199-222.   DOI
4 Fan, S., Lin, C., & Treisman, D. (2009). Political decentralization and corruption: evidence from around the world. Journal of Public Economics, 93, 14-34.   DOI
5 Fisman, R., & Gatti, R. (2002). Decentralization and corruption: Evidence across countries. Journal of Public Economics, 83, 325-345.   DOI
6 Gemmell, N., Kneller, R., & Sanz, I. (2013). Fiscal decentralization and economic growth: Spending versus revenue decentralization. Economic Inquiry, 51(4), 1915-1931.   DOI
7 Giannetti, M. (2002). The effects of integration on regional disparities: Convergence, divergence or both? European Economic Review, 46(3), 539-67   DOI
8 Gil, C., Pascual, P., & Rapun, M. (2004). Regional economic disparities and decentralization. Urban Studies, 41(1), 71-94 26   DOI
9 Greene, W. H. (2012). Econometric Analysis (7th ed.). Upper Saddle River, NJ: Prentice Hall.
10 Hall, R., & Jones, C. (1999). Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics, 114(1), 83-116.   DOI
11 Hayashi, F. (2000). Econometrics. Princeton, NJ: Princeton University Press.
12 Arzaghi, M., & Henderson, V. (2005). Why countries are fiscally decentralizing. Journal of Public Economics, 89, 1157-1189.   DOI
13 Avery, R. (1977). Error components and seemingly unrelated regressions. Econometrica, 45, 199-209.   DOI
14 Alesina, A., & Zhuravskaya, E. (2011). Segregation and the quality of government in a cross-section of countries. American Economic Review, 101(5), 1872-1911.   DOI
15 Newey, W. K., & West, K. D. (1994). Automatic lag selection in covariance matrix estimation. Review of Economic Studies, 61, 631-653.   DOI
16 Zellner, A. (1962). An efficient method of estimating seeming unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association, 57, 348-368.   DOI
17 McKinnon, R. (1997). Market-preserving fiscal federalism in the American monetary union. In: M. Blejer, & T. Ter-Minassian (Eds.), Macroeconomic dimensions of public finance: Essays in honour of Vito Tanzi (pp. 73-93). London, UK: Routledge.
18 Newey, W. K., & West, K. D. (1987). A simple, positive semidefinite heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica, 56, 203-208.
19 Nguyen, V. C., & Do, T. T. (2020). Impact of Exchange Rate Shocks, Inward FDI and Import on Export Performance: A Cointegration Analysis. Journal of Asian Finance, Economics and Business, 7(4), 163-171. https://doi.org/10.13106/jafeb.2020.vol7.no4.163   DOI
20 Oates, W. (1993). Fiscal decentralization and economic development. National Tax Journal, 46(2), 237-243.   DOI
21 Oates, W. (1999). An essay on fiscal federalism. Journal Economic Literature, 37, 1120-1149.   DOI
22 Panizza, U. (1999). On the determinants of fiscal centralization: Theory and evidence. Journal of Public Economics, 74, 97-139.   DOI
23 Petrakos, G. (2001). Patterns of regional inequality in transition economies. European Planning Studies, 9, 359-383.   DOI
24 Petrakos, G., Rodriguez-Pose, A., & Rovolis, A. (2005). Growth, integration and regional disparities in the European Union. Environment and Planning A, 37, 1837-1855.   DOI
25 Alesina, A., & Spolaore, E. (2003). The size of nations. Cambridge MA: MIT Press.
26 Acemoglu, D., Johnson, S., & Robinson, J. (2001). The Colonial Origins of Comparative Development: An Empirical Investigation. American Economic Review, 91, 1369-1401.   DOI
27 Andrews, D. W. K. (1991). Heteroskedasticity and autocorrelation consistent covariance matrix estimation. Econometrica, 59, 817-858   DOI
28 Ades, A. & Di Tella, R. (1999). Rents, competition and corruption, American Economic Review, 89(4), 982-993.   DOI
29 Baum, C. F. (2006). An Introduction to Modern Econometrics Using Stata. College Station, TX: Stata Press.
30 Baltagi, B. H. (1981). Simultaneous equations with error components. Journal of Econometrics, 17, 189-200.   DOI
31 Baltagi, B. H. (2008). Econometric Analysis of Panel Data (4th ed.). Chichester, UK: Wiley and Sons.
32 Bardhan, P. (2002). Decentralization of government and development. Journal of Economic Perspectives, 16(4), 185-205.   DOI
33 Bardhan, P., & Mookherjee, D. (2006). Decentralization, corruption and government accountability: an overview. In: S. Rose-Ackerman (Ed.), International Handbook on the Economics of Corruption (pp. 161-188). Cheltenham, UK: Edward Elgar.
34 Barro, R. (2000). Inequality and growth in a panel of countries. Journal of Economic Growth, 5(1), 5-32.   DOI
35 Barro, R. (2001). Human capital and growth. American Economic Review, 91(2), 12-17.   DOI
36 Kyriacou, A., & Roca-Sagales, O. (2011b). Fiscal decentralization and government quality in the OECD. Economics Letters, 111(3), 191-193.   DOI
37 Zellner, A. (1963). Estimators for seemingly unrelated regression equations: Some exact finite sample results. Journal of the American Statistical Association, 58, 977-992.   DOI
38 Zellner, A., & Huang, D. (1962). Further properties of efficient estimators for seemingly unrelated regression equations. International Economic Review, 3, 300-313.   DOI
39 Prud'homme, R. (1995). On the dangers of decentralization. World Bank Research Observer, 10(2), 201-220.   DOI
40 Kyriacou, A., & Roca-Sagales, O. (2011a). Fiscal and political decentralization and government quality. Environment and Planning C (Government and Policy), 29(2), 204-223.   DOI
41 Kyriacou, A., & Roca-Sagales, O. (2012). The impact of EU structural funds on regional disparities within member states. Environment and Planning C (Government and Policy), 30(2), 267-281.   DOI
42 Kyriacou, A., & Roca-Sagales, O. (2014). Regional disparities and government quality: Redistributive conflict crowds out good government. Spatial Economic Analysis, 9(2), 183-201.   DOI
43 Kyriacou, A., Muinelo-Gallo, L., & Roca-Sagales, O. (2014). Fiscal decentralization and regional disparities: The importance of good governance. Forthcoming, Papers in Regional Science, DOI: 10.1111/pirs.12061
44 Keen, M., & Marchand, M. (1997). Fiscal competition and the pattern of public spending. Journal of Public Economics, 66, 33-53.   DOI
45 Kmenta, J. (1997). Elements of Econometrics. Second Edition Annual Arbor: University of Michigan Press.
46 La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1999). The quality of government. Journal of Law, Economics and Organization, 15(1), 222-279.   DOI
47 Lessmann, C. (2009). Fiscal decentralization and regional disparity: Evidence from cross section and panel data. Environment and Planning A, 41, 2455-2473.   DOI
48 Lessmann, C. (2012). Regional inequality and decentralization: an empirical analysis. Environment and Plannning A, 44, 1363-1388.   DOI
49 Zhuravskaya, E. (2000). Incentives to provide local public goods: Fiscal federalism, Russian style. Journal of Public Economics, 76(3), 337-368.   DOI
50 Zellner, A., & Theil, H. (1962). Three-stage least squares: simultaneous estimation of simultaneous equations. Econometrica, 30(1), 54-78.   DOI
51 Shah ABBAS, Van Chien NGUYEN, Zhu YANFU, Huu Tinh NGUYEN. The Impact of China Exchange Rate Policy on its Trading Partners: Evidence Based on the GVAR Model Journal of Asian Finance, Economics and Business, 7(8), 131-141.   DOI
52 Seldayo, H., Elhorst, J., & De Haan, J., (2010). Geography and governance: does space matter? Papers in Regional Science, 89(3), 625-641.   DOI
53 Shleifer, A, & Vishny, R. (1993). Corruption . Quarterly Journal of Economics, 108, 599-616.   DOI
54 Solt, F. (2009). Standardizing the World Income Inequality Database. Social Science Quarterly, 90(2), 231-242.   DOI
55 Stegarescu, D. (2009). The effects of economic and political integration on fiscal decentralization: evidence from OECD countries, Canadian Journal of Economics, 42(2), 694-718.   DOI
56 Tanzi, V. (1998). Corruption around the world - causes, consequences, scope, and cures. IMF Staff Papers, 45, 559-594.   DOI
57 Rodden, J. (2004). Comparative federalism and decentralization. On meaning and measurement. Comparative Politics, 36(4), 481-500.   DOI
58 Letelier, L. (2005). Explaining fiscal decentralization. Public Finance Review, 33, 155-183.   DOI
59 Qian, Y., & Roland G. (1998). Federalism and the soft budget constraint. American Economic Review, 88(5), 1143-1162.
60 Qian, Y., & Weingast, B. (1997). Federalism as a commitment to preserving market incentives. Journal of Economic Perspectives, 11, 83-92.   DOI
61 Rodden, J., & Rose-Ackerman, S. (1997). Does federalism preserve markets? University of Virginia Law Review, 83(7), 1521-1572.   DOI
62 Rodriguez-Pose, A. (2012). Trade and regional inequality. Economic Geography, 88(2), 109-136.   DOI
63 Rodriguez-Pose, A., & Ezcurra, R. (2010). Does decentralization matter for regional disparities? A cross-country analysis. Journal of Economic Geography, 10, 619-644.   DOI
64 Rodriguez-Pose, A., & Gill, N. (2004). Is there a global link between regional disparities and devolution? Environment and Planning A, 36(12), 2097-2117.   DOI
65 Saachi, A., & Salotti, S. (2014a). How regional inequality affects fiscal decentralisation: accounting for the autonomy of subcentral governments. Environment and Planning C (Government and Policy), 32(1), 144-162.   DOI
66 Bjorn, E., & Krishnakumar, J. (2008). Measurement errors and simultaneity. In: L. Matyas, & P. Sevestre (Eds.), The Econometrics of Panel Data. Fundamentals and Recent Developments in Theory and Practice (Chapter 10, pp. 323-367).
67 Barro, R., & Lee, J. (2001). International data on educational attainment: Updates and implications. Oxford Economic Papers, 53(3), 541-563.   DOI
68 Bazzi, S., & Clemens, M. (2013). Blunt instruments: avoiding common pitfalls in identifying the causes of economic growth. American Economic Journal: Macroeconomics, 5(2), 152-186.   DOI
69 Beramendi, P. (2007). Inequality and the Territorial Fragmentation of Solidarity. International Organization, 61, 783-820.   DOI
70 Brennan, G., & Buchanan, J. (1980). The power to tax. Analytical foundations of a fiscal constitution. Cambridge, UK: Cambridge University Press.
71 Cai, H., & Treisman, D. (2004). State corroding federalism. Journal of Public Economics, 88, 819-843   DOI
72 Kyriacou, A. (2012). Ethnic segregation and the quality of government: the importance of regional diversity. Constitutional Political Economy, 23(2), 166-180.   DOI
73 Tanzi, V. (2000). On fiscal federalism: issues to worry about. In: The World Bank Conference on Fiscal Decentralisation, Washington, DC.
74 Tariq, R., Khan, M. A., & Rahman, A. (2020). How Does Financial Development Impact Economic Growth in Pakistan? New Evidence from Threshold Model. Journal of Asian Finance, Economics and Business, 7(8), 161-173. https://doi.org/10.13106/jafeb.2020.vol7.no8.161   DOI
75 Theil, H. (1971). Principles of Econometrics. London, UK: Wiley.
76 Jin, H., Yingyi, Q., & Weingast, B. (2005). Regional decentralization and fiscal incentives: Federalism Chinese style. Journal of Public Economics, 89(9-10), 1719-1742.   DOI
77 Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review., XLV. https://assets.aeaweb.org/asset-server/files/9438.pdf
78 Mauro, P. (1995). Corruption and Growth. Quarterly Journal of Economics, 110(3), 691-712.   DOI
79 Mankiw, G., Romer, D., & Wei, l. D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(2), 407-437.   DOI
80 Matyas, L. (1999). Generalized Method of Moments Estimation. Cambridge, UK: Cambridge University Press.
81 Cai, H., & Treisman, D. (2005). Does competition for capital discipline government? Decentralization, globalization and public policy. American Economic Review, 95(3), 817-830   DOI
82 Cameron, A. C., & Trivedi, P. K. (2005). Microeconometrics: Methods and Applications. Cambridge, UK: Cambridge University Press.
83 Costa-Font, J. (2010). Does devolution lead to regional inequalities in welfare activity? Environment and Planning C: Government and Policy, 28(3), 435-449.   DOI
84 Davidson, R., & MacKinnon, J. G. (2004). Econometric Theory and Methods. New York, NY: Oxford University Press.
85 Wallis, J. J., & Oates, W. E. (1988). Decentralization in the public sector: an empirical study of state and local government. In W. E. Oates (Ed.), Studies in Fiscal Federalism, Aldershot, UK: Edward Elgar.
86 Treisman, D. (2000). The causes of corruption: A cross-national study. Journal of Public Economics, 76, 399-457.   DOI
87 Van Rijckeghem, C., & Weder, B. (2001). Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much? Journal of Development Economics, 65(2), 307-331.   DOI
88 Voitchovsky, S. (2005). Does the profile of income inequality matter for economic growth? Distinguishing between the effects of inequality in different parts of the income distribution. Journal of Economic Growth, 10, 273-290.   DOI
89 Weingast, B. (1995). The economic role of political institutions: Market-preserving federalism and economic development. Journal of Law, Economics, and Organization, 11, 1-31.
90 Wheare, K. C. (1964). Federal Government. Oxford, UK: Oxford University Press.
91 Williamson, J. (1965). Regional inequality and the process of national development: A description of patterns. Economic Development and Cultural Change, 13, 3-45.   DOI
92 Wooldridge, J. M. (2010). Econometric Analysis of Cross Section and Panel Data (2nd ed.). Cambridge, MA: MIT Press.
93 Ezcurra, R. (2012). Is there a link between globalization and governance? Environment and Planning C. Government and Policy, 30(5), 848-870.   DOI
94 Elazar, D. (1995). From statism to federalism: a paradigm shift.' Publius. The Journal of Federalism, 25, 5-18.
95 Enikolopov, R., & Zhuravskaya, E. (2007). Decentralization and Political Institutions. Journal of Public Economics, 91(11-12), 2261-2290.   DOI
96 Lin, S., Kim, D., Huang, H., & Yeh, C. (2009). Nonlinearity between inequality and growth. Studies in Nonlinear Dynamics Econometrics, 13(2). DOI: 10.2202/1558-3708.1635
97 Ezcurra, R., & Pascual, P. (2008). Fiscal decentralization and regional disparities: Evidence from several European Union countries. Environment and Planning A, 40, 1185-120.   DOI