Impact of fiscal decentralization on economic growth: empirical evidence from Vietnamese localities

Abstract

This study employs a panel data fixed-effects model to examine how fiscal decentralization influences economic growth across 63 provinces in Vietnam from 2010 to 2022. Revenue decentralization negatively affects GRDP growth. In contrast, expenditure decentralization and self-collected revenues have a positive impact. Based on these insights, the study offers several recommendations for fostering economic growth by adjusting Vietnam’s fiscal decentralization framework. Key suggestions include: (i) enhancing the decentralization of local revenue sources, fully retained by local governments or proportionally shared, and (ii) strengthening expenditure decentralization by granting local authorities greater autonomy to manage budgets effectively according to output-based commitments. Additionally, other channels that support economic growth, such as improving institutional quality and increasing non-state investment, should also be enhanced.