What is in it for the Poor? Evidence from Fiscal Decentralization in Vietnam

Abstract

Like other developing countries, Vietnam has attempted to push for greater fiscal decentralization in the hope of a more efficient delivery of social services to targeted citizens. The fiscal decentralization initiative is encouraging and merits pursuit, but the present study however, shows that a misstep in the decentralization process can discriminate disproportionately against the poor. Specifically, an increase in the sub-provincial share of the total provincial expenditures is predicted to bring about an appreciable decrease in the lowest-quintile average monthly income. We suggest that the Vietnamese government require provinces to adopt pro-poor allocation norms rather than reclaiming its control over the provincial expenditure assignment. This paper’s empirical findings sound a note of considerable caution that other developing countries should exercise in their fiscal decentralization efforts to avoid creating unintended consequences for the poor.