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Local Governance: Impacts of Fiscal Decentralization on Government Size and Spending Composition in Vietnam*
Author(s) -
Thanh Su D.,
Canh Nguyen P.
Publication year - 2019
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/asej.12189
Subject(s) - decentralization , economics , panel data , spillover effect , corporate governance , government spending , public spending , local government , public finance , government (linguistics) , fiscal policy , macroeconomics , economic policy , monetary economics , welfare , finance , econometrics , market economy , geography , political science , linguistics , philosophy , archaeology , politics , law
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.