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Unformatted text preview: 69 What is in it for the Poor? Evidence from Fiscal Decentralization in Vietnam 4 Hoang-Phuong Nguyen is a Ph.D. Candidate at the Center for Policy Research, Syracuse University. W HAT IS IN IT FOR THE P OOR ? E VIDENCE FROM F ISCAL D ECENTRALIZATION IN V IETNAM Hoang-Phuong Nguyen 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 papers 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. I NTRODUCTION This paper investigates the effects of decentralized public expenditures created by Vietnams State Budget Law (SBL) in 2002 on poverty al- leviation. Fiscal decentralization is the process of endowing sub-national governments with more taxing powers and autonomy in decisions on expenditures. Results of research are still inconclusive regarding the effects 70 Hoang-Phuong Nguyen of fiscal decentralization on a countrys social and economic development, but almost all developing countries have embarked upon some type of fiscal decentralization initiative (Martinez-Vazquez and McNab 2003). More attention has recently been focused on researching the effects of fiscal decentralization on social outcomes, particularly on poverty allevia- tion. However, no studies have explored the impact of greater autonomy in expenditure decision-making accorded to Vietnamese provinces on the amelioration of poverty. This paper attempts to fill the current gap in this increasingly growing field. Since the adoption of the doi moi , or renovation, policy in 1986, Vietnam has experienced developments in several socio-economic aspects, includ- ing poverty alleviation. The developmental path has included attempts towards greater administrative, economical, and fiscal decentralization. The government of Vietnam passed the SBL in 2002 with great fanfare. Becoming effective in 2004, the law was considered a remarkable develop- ment in the process of fiscal decentralization, and, thus, was expected to lead to a better delivery of social services. The 2002 SBL features a new mechanism for expenditure assignments whereby the central government grants provinces autonomy to allocate spending responsibilities to lower- level governments. Given the relative importance of poverty alleviation level governments....
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- Fall '11