The Disparity of Revenue and Expenditure among Subnational Governments in Vietnam

Fiscal decentralization has attracted attention from government, academic studies, and international institutions with the aims of enhancing economic growth in recent years. One of the difficult issues is to measure satisfactorily the degree of fiscal decentralization across countries. The fiscal decentralisation index, the first of its kind, was recently developed in 2010. This newly developed index accounts for both fiscal autonomy and fiscal importance of subnational governments. We argue that while Vo’s index is an advance on current practice, it is still not perfect as it assumes there is no dispersion of revenue and expenditure across regions. In response to this weakness, fiscal entropy and fiscal inequality measures are developed using information theory. It is shown how fiscal inequality can be decomposed regionally and hierarchically. These ideas are illustrated with an emerging country data—Vietnam—pertaining to the national, provincial, and local levels of governments.