Fiscal Decentralization and Local Budget Deficits in Viet Nam: An Empirical Analysis

30 Pages Posted: 5 Jan 2017

See all articles by Peter Morgan

Peter Morgan

ADBI

Long Q. Trinh

Asian Development Bank Institute

Date Written: November 9, 2016

Abstract

Since 1975, Viet Nam has gradually decentralized more fiscal responsibilities to local authorities. This study has two objectives: (i) to take stock of the current institutional framework for intergovernmental fiscal relations in Viet Nam, and (ii) to empirically assess the debt sustainability of local governments in Viet Nam. The empirical analysis uses two estimation methods: (i) fully modified ordinary least squares (OLS) to estimate the long-term correlations between co-integration equations, including vectors of co-integration variables, and stochastic regressor innovations; and (ii) fiscal reaction equations at the provincial level, based upon the Bohn (2008) model. The empirical results suggest that deficit levels are generally sustainable at the local level.

Keywords: Government Decentralization, Government Fiscal Balance, Intra-Government Transfers, Expenditure Assignment, Revenue Assignment, Local Government Borrowing, Viet Nam

JEL Classification: H70, H71, H72, H74, H77

Suggested Citation

Morgan, Peter J. and Trinh, Long Q., Fiscal Decentralization and Local Budget Deficits in Viet Nam: An Empirical Analysis (November 9, 2016). ADBI Working Paper No. 613, Available at SSRN: https://ssrn.com/abstract=2893058 or http://dx.doi.org/10.2139/ssrn.2893058

Peter J. Morgan (Contact Author)

ADBI ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Long Q. Trinh

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

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