Fiscal decentralization and poverty alleviation in a transitional economy the case of viet nam

FISCAL [Asian Economic DECENTRALIZATION Journal 1998, Vol 12 No AND 3] 4] POVERTY 353 Fiscal Decentralization and Poverty Alleviation in a Transitional Economy: The Case of Viet Nam M Govinda Rao Australian National University Richard M Bird University of Toronto Jennie I Litvack World Bank Intergovernmental fiscal arrangements may play an important role in ameliorating poverty in many countries Successful poverty alleviation generally requires both ‘capacity improving’ and ‘safety net’ policies, and both types of policies may, to some extent, be implemented through, or affected by, intergovernmental transfers From this perspective, we analyse the efficacy of intergovernmental fiscal arrangements in poverty alleviation in a transitional economy, Viet Nam We argue that both general and specific transfers are needed for this purpose: the former to enable all provinces to provide a given basket of public services at a given tax-price by offsetting their revenue and cost disabilities and the latter to ensure that minimum levels of those public services provided by lower levels of government are targeted to the poor throughout the country I Introduction A successful poverty alleviation strategy in any country has four distinct elements First, who are the poor? Where are they located, and what they do? Second, why are they poor? Only after we know who the poor are, where they live, what they do, and have some idea of the causes of poverty, can the third element in the strategy, the design of a set of specific policies to improve the living standards of the poor, be determined Third, experience suggests that effective strategy to improve the living standards of the poor require both measures aimed at accelerating economic growth (capacity improving) to provide a lasting solution to the problem, and more direct (safety net) policies to provide an immediate ASIAN ECONOMIC JOURNAL 354 consumption entitlement to the poor Finally, policies must, of course, be implemented effectively to ensure that benefits actually accrue to the targeted groups at the lowest cost Fiscal decentralization may, in principle, enter this picture at several different levels The proximity of policy makers to the people, for example, may reduce the information and transaction costs in identifying the poor and help in designing appropriate ‘capacity improving’ and ‘safety net’ policies Decentralized provision of public services enhances welfare when there are significant localized differences in preferences although the extent to which this ‘decentralization theorem’ (or ‘principle of subsidiarity’) actually influences policy in any country, of course, depends upon how a nation’s political institutions are organized (Oates, 1972) Further, effective implementation of capacity-improving and safety-net policies may depend upon the close involvement of local governance institutions Governments that are ‘closer to the people’ should, in principle, be able to provide services more efficiently and effectively than a remote, centralized authority provided responsibilities are assigned appropriately and the right incentives are provided through the system of intergovernmental fiscal arrangements (Bird, 1993) Different regions may have different needs and preferences for poverty alleviation and different capacities to meet those needs and preferences If poverty alleviation is a national policy concern, but some key poverty-alleviation policies are for whatever reason delivered by local governments, the capacity of the latter to finance such services out of their own resources is likely to differ greatly In Viet Nam, for example, provinces with a high concentration of poverty also have low levels of social and physical infrastructure, low agricultural productivity, and low per capita gross domestic product (GDP) Intergovernmental transfers may thus have to be designed to ensure that the poorer localities have sufficient resources to deliver the desired ‘package’ of services (Rao and Das-Gupta, 1995) This paper considers how fiscal decentralization and central transfers to sub-central governments can help in the task of poverty alleviation policy in Viet Nam In Section II, we describe briefly the poverty situation in Viet Nam and introduce the appropriate design and implementation of policies required to accelerate economic growth and reduce poverty in the light of the experience of successful East Asian economies In Section III, we consider the role of central and local governments in designing and implementing poverty-alleviating policies and the design and mix of different types of intergovernmental transfer schemes In the light of this conceptual discussion, we then analyse in Section IV current intergovernmental fiscal arrangements and transfer systems in Viet Nam Finally, in Section V, we suggest how the intergovernmental fiscal system might be reformed to improve poverty-alleviation policies in Viet Nam FISCAL DECENTRALIZATION AND POVERTY II 355 Poverty, Public Policy, and Fiscal Decentralization II.1 Where the Poor Live? The Viet Nam Living Standards Measurement Survey (LSMS) highlights four important features of poverty in Viet Nam (see Table 1) namely: (i) the overall incidence of poverty is extremely high; the consumption level of 51% of population is below a widely used international poverty line;1 (ii) there are significant regional variations in the incidence of poverty within the country, ranging from 33% in the South East to 71% on the North Central Coast; (iii) poverty is about twice as common in rural as in urban areas and rural poverty accounts for almost 90% of the poor; and (iv) almost 76% of the poor are in the farming population As Table shows, in Viet Nam poverty is not only associated with low per capita income, low population density and low agricultural productivity but is also reflected in low indicators of human development such as infant mortality, maternal mortality and illiteracy The inverse relationship between the poverty ratio and agricultural productivity reflects at least, in part, the importance of such economic services as irrigation, agricultural extension, rural roads and rural credit in reducing poverty Similarly, the high poverty ratio in areas with low population density reflects in part the lack of social and economic infrastructure for the population in mountainous and remote regions II.2 Poverty and Public Policy: The Asian Experience Policy interventions to combat poverty may be divided into two broad groups (Bhagwati, 1988) First, longer-term policies attempt to create an environment for the efficient use of resources and technological progress and to direct the flow of benefits of ensuing faster growth to the poor: ensuring a conducive incentive structure through land reforms, generating larger farm and off-farm employment opportunities through the provision of irrigation, agricultural extension and rural infrastructure and investment in human resources through publicly funded broad based education and primary health care Second, shorter-term policies to provide immediate relief through self-employment and wage-employment opportunities and social security to the disabled and the destitute The experience of such Asian economies as Taiwan (China), South Korea, Indonesia, Malaysia and China underlines the importance of public investment in rural infrastructure and human capital in generating broad-based growth in rural incomes and reduction in rural poverty irrespective of the political systems In all these countries, rural transformation was achieved by improving the quality of physical and social infrastructure, improving access to education and health facilities, raising agricultural productivity and expanding rural non-farm The poverty line is based on a basket of goods in which food items contain 2100 calories per person per day and the non-food items reflect the cost of basic goods consumed by the people who just reach the poverty line Region Northern Mountains Red River Delta North Central Coast South Central Coast Central Highlands South East Mekong Delta All Regions Regional Profile of Income Levels, Poverty and Social Development in Viet Nam Poverty Ratio Rural Urban Total 63 55 74 54 50 45 52 57 34 15 42 36 – 17 28 26 59 49 71 49 50 33 48 51 Per Capita GDP – 1993 (1989 Prices) 1000 Dongs Density of Population Per sq km Illiteracy Rate* Infant Mortality Rate (Per 1000 births) Maternal Mortality Rate (Per 1000 births) Agricultural Productivity (Paddy equivalent) Tons/hectare 332.5 448.4 277.6 331.2 380.8 1117.5 472.0 478.2 115 1085 181 157 50 358 325 209 18.9 7.2 10.2 12.3 25.6 10.1 15.3 13.1 52.3 44.2 54.2 50.6 69.1 37.4 51.7 49.5 2.1 1.7 2.1 2.2 2.8 1.5 2.0 2.0 2.07 2.74 2.25 3.13 2.36 2.67 3.95 3.06 ASIAN ECONOMIC JOURNAL Table Note: * Percentage of population above 10 years who never attended school has been taken as a proxy for illiteracy rate Source: Bird, Litvack and Rao (1995) 356 FISCAL DECENTRALIZATION AND POVERTY 357 activities This experience suggests that publicly funded investments in rural infrastructure (roads, bridges, irrigation and electricity) and broad-based education and health care in rural areas are critical in the early years of rural transformation The combination of rural infrastructure and human resource development led to improvements in productivity, opened up markets, hastened the demographic transition, enhanced the mobility of labour, strengthened urban-rural linkages and accelerated rural industrialization Together with changes in the incentive structure initiated by the land reforms in the early phase of development (as in Taiwan, South Korea and China), investments in rural infrastructure, rural institutions and human resource development not only led to strong growth performances, but also created an equitable basis of growth and resulted in a significant decline in poverty.2 The experience of Viet Nam itself highlights the pressure of demand for rural public services created by the change in the incentive structure with the return to family farming and market opportunities (World Bank, 1993b) As in other Asian economies, analysis of household data in Viet Nam underlines the importance of physical and social infrastructure in rural areas As mentioned earlier, the poor in Viet Nam are concentrated in areas where agricultural productivity is low Those who live near all-weather roads have higher incomes, and education has a significantly favourable effect on agricultural productivity and small household enterprise earnings Households with more diverse economic activities enjoy higher living standards Such findings suggest that significant levels of investments in irrigation, agricultural extension and research, rural roads and marketing facilities, access to information and knowledge, markets and technology and above all basic education and primary health care in Viet Nam are needed to achieve appreciable reduction in poverty in the medium term (Wiens, 1996; Van de Walle, 1996) III Fiscal Decentralization and Poverty Alleviation III.1 Role of Local Governments in Poverty Alleviation What is the role of local government expenditure policies in reducing poverty? If poverty alleviation is considered as a purely redistributive task, in principle its implementation should be the responsibility of the central government since the potential mobility of population limits the efficacy of sub-central governments in undertaking these redistributive policies (Brown and Oates, 1987; Ladd and Doolittle, 1982) Moreover, if concern for the poor of one locality is not confined to the residents of that locality, the volume of resources allocated by the See, World Bank (1993a) for a discussion on the contribution of these factors in imparting dynamism to the agricultural sector in East Asian economies Ranis (1995) also stresses the importance of well developed rural (roads, drainage, irrigation and power) and institutional infrastructure (agricultural research, experiment stations and farmers’ associations) and effective land reforms in Taiwan and South Korea ASIAN ECONOMIC JOURNAL 358 locality for poverty alleviation would be non optimal.3 However, even from this limited perspective, local governments may, as noted earlier, have a role to play; governments that are closer to the people should, as a rule, be able to provide services more efficiently than a remote, centralized authority More importantly, as already mentioned, a lasting solution to the problem of poverty can be achieved only by accelerating economic growth by promoting efficient allocation of resources The literature on fiscal federalism has highlighted the potential efficiency gains from the better matching of the supply with the demand for public services in different localities and more flexible bundling of public services (Breton, 1990) when the allocative function is decentralized Moreover, competition among jurisdictions may lead to greater innovations and productivity gains (Oates, 1977; Shah, 1994).4 Whether or not fiscal decentralization is a help or a hindrance in designing and implementing poverty alleviation policies, it is an important institutional reality in a country like Viet Nam with a unitary political system and a significantly planned economy How existing decentralized institutions can be geared and reoriented to enhance efficiency in the delivery of public services, accelerate economic growth and reduce poverty is thus an important question III.2 Intergovernmental Transfers: Rationale and Design Transfers between governments often coexist with transfers between persons executed through tax-transfer schemes and public spending policies Intergovernmental transfers may be explained in various ways: (i) closing the fiscal gap arising from the assignment of more expenditure responsibility than revenue sources or ensuring adequate funds for the sub-central governments to satisfactorily undertake the functions assigned to them; (ii) offsetting the imbalance between revenue capacity and expenditure need across different sub-central governments (equalization); and (iii) Pigovian-type transfers needed when the benefits of public services spill over jurisdictional boundaries to ensure optimal supply or a prescribed minimum levels of those services considered ‘meritorious’ by the central government (Bird, 1993; Shah, 1994) Broadly, general-purpose transfers Brown and Oates (1987) and Ladd and Doolittle (1982) argue for central intervention on the grounds that poverty anywhere in a country is a concern for people everywhere In contrast, Pauly (1973) and Tresch (1981) present a local public good view of poverty alleviation and assume limited mobility of labour to justify local interventions in poverty alleviation Bahl and Linn (1992), however, think that this efficiency case for decentralization in developing countries is much weaker than industrialized countries Prud’homme (1995), takes an even stronger position when he argues that decentralization would result in lower allocative efficiency because the local bureaucracy is less efficient (economies of scope) and more corrupt (see also Tanzi, 1995) However, experience shows that capacity or efficiency of local bureaucrats, even when it is seen to be low in a static situation, may improve dramatically when greater responsibility is assigned and right incentives are given, as in Colombia (see, World Bank, 1995) As regards corruption, it may also be argued that greater transparency in public spending and taxes at the local (rather than central) level may lead to higher accountability (hence less corruption) FISCAL DECENTRALIZATION AND POVERTY 359 are intended to meet the objective of equalization and specific-purpose transfers (with matching requirements from local governments) are considered appropriate (cost effective) for transfers given for spillover or merit good reasons.5 Arguments for equalization were advanced initially by Buchanan (1950) and later developed by Boadway and Flatters (1982) Taking comprehensive income as an index of wellbeing, it is argued that a central income tax can not ensure horizontal equity since it does not take account of the redistributive effect of local fiscal operations, which can not be distributionally neutral (except in the unlikely case of their financing public services through only benefit taxes) When local public services are financed by resource rents or source-based (as against residence-based) taxes, the net fiscal benefits (NFBs or benefits less locally borne taxes) will vary systematically with residents of resource-rich (high-income) regions having higher NFBs, inefficient migration into these regions may thus be induced For both efficiency and equity reasons then, it may be argued that there should be transfers from the rich to poor regions to offset the fiscal disadvantages arising from lower revenue capacity and higher unit cost of providing public services This can be achieved by a general-purpose transfer equivalent to the ‘need-revenue’ gap (Bradbury, et al., 1984), which measures the difference between what a local government needs to spend to provide a specified level of public services and the revenue it can raise at a given level of tax effort Transfers meant to deal with spillover problems or those given for merit, good reasons are required to ensure that local governments provide a prescribed normative (minimum) level of specified public services Such transfers are cost effective when the purpose for which they are given is specified, and subnational governments are required to make a matching contribution with the matching ratio varying with the size of the spillovers.6 The objective of intergovernmental transfer, in principle, is thus, not poverty alleviation per se Rather, such transfers are intended to offset local fiscal disabilities and to ensure the provision of prescribed standards of specified public services Of course, one such service might take the form of specific poverty alleviation programmes By enabling the provision of a reasonable level of physical and social infrastructure in low-income areas where the poor are concentrated, as well as the maintenance of selective schemes to provide short-term self-employment and wage-employment opportunities, the intergovernmental transfer system may thus in practice be an important instrument in povertyalleviation strategy An ideal set of intergovernmental fiscal arrangements would include the following elements: (i) adequate resources in the hands of local governments as a whole, from a combination of local taxes and central transfers, to enable them Of course, both type of transfers help close the ‘fiscal gap’ Since the responsiveness of sub-central governments to a given matching ratio may vary with their level of incomes, to elicit equal responsiveness, equalizing matching ratios may be required (Feldstein, 1975) ASIAN ECONOMIC JOURNAL 360 to carry out their assigned functions; (ii) a transfer system that ensures each individual local government has sufficient resources to provide essential functions at an acceptable standard, provided local taxes are imposed at reasonable rates; (iii) sufficient flexibility in setting local taxes and charges so that local governments can respond to the preferences, special problems, and resource endowments prevailing in different regions; (iv) sufficient incentive to ensure that local fiscal effort is maintained and local budgets are managed efficiently; and (v) where minimum levels of spending on specific programmes are considered to be of national importance, specific-purpose transfers, sometimes with matching requirements Such an ideal system, is seldom found in practice, and certainly not in countries such as Viet Nam where, traditionally a unified budget has been employed as a tool to implement central planning Nonetheless, an essential, but often unduly neglected part of the transition towards a more market-oriented economy is precisely a change in the budgetary and intergovernmental system (Bird and Wallich, 1993), and such a change is under way in Viet Nam IV Fiscal Decentralization and Delivery of Public Services in Viet Nam IV.1 Structure of Local Governments Like most centrally planned economies, Viet Nam has a ‘deconcentrated’ system, in which the centralized state authority is extended to local administrations in provinces, districts and communes.7 In this unified structure of government, local governments not have independent decision-making authority Nonetheless, the system provides for local involvement to ensure that the public services are delivered in response to the local needs and development is in conformity with local resources In this so called ‘double subordination’ system, local governments are thus accountable in a sense to both the electorate and higher level governments Within the unified state, the government is deconcentrated into three local levels – provinces, districts, and communes The structure of local government consists of 53 provinces, 560 districts, and 10,032 communes The unified budget includes the revenues and expenditures of the centre, the provinces and the districts Delivery of public services at the commune level is included only to the extent that it is financed by grants from higher-level governments.8 IV.2 Assignment of Expenditures and Taxes The assignment of expenditures to different levels of government in Viet Nam is based on a resolution of the Council of Ministers passed in November 1989, as subsequently amended Local governments are responsible for ensuring law For a discussion on typology of decentralization, see, Rondinelli (1996) For a useful description of the ‘double subordination’ system see, World Bank (1996), pp 42–43 Note that as used here, ‘local governments’ refers to all subnational levels 361 FISCAL DECENTRALIZATION AND POVERTY Table Government Expenditure in Viet Nam (1992) Total Expenditure (Bn Dongs) Per Capita Expenditure (Dongs) Per cent of GDP Per cent of Total Share of Provincial Expenditure (%) Current expenditure Gen adm services Economic services Social services (i) Education (ii) Health (iii) Pensions (iv) Others Interest Others Total Current expenditure 2,404 1,495 6,240 1,495 1,136 2,369 1,240 3,218 5,314 18,671 34,687 21,571 90,035 21,571 16,391 34,182 17,892 46,432 76,674 269,399 2.4 1.5 6.1 1.5 1.1 2.3 1.2 3.2 5.2 18.3 10.2 6.3 26.4 6.3 4.8 10.0 5.2 13.6 22.5 79.0 43.1 78.9 46.0 88.6 88.1 – 15.1 – 18.9 35.9 B Capital expenditure Total expenditure 4,956 23,627 71,509 390,908 4.9 23.2 21.0 100.0 34.4 35.5 A Source: Bird, Litvack and Rao (1995) and order within their jurisdictions, but, as in many other countries, with a few exceptions such as defence most responsibilities are shared more on the basis of the size of the projects than the type of expenditure Large investment projects, the benefits of which spill over to a number of provinces, are central responsibilities, while small projects benefiting mainly the residents of a province are undertaken by provinces Thus, all major irrigation, flood control and embankment projects and national highways are central responsibilities, but the maintenance and repair of minor irrigation works and roads other than national highways is a local responsibility Similarly, primary and secondary education is mainly assigned to the provinces, but higher education is central, and major hospitals are managed by the centre, while the provinces run hospitals in provincial towns and districts Provinces are also responsible for the public health centres run at the commune level Thus, in principle, local governments have a significant role in the delivery of public services Expenditure incurred by the provinces constitutes almost a third of the total (Table 2) Their expenditure share is especially high in such social services as education and health Moreover, although most capital expenditures are incurred by the centre, the provinces play a major role in maintaining public investments and in activities like agricultural extension and rural roads Consequently, their share in current expenditures on economic services is also significant Nevertheless, the provinces’ leeway in altering expenditure levels is constrained by the absence of significant revenue-raising powers The responsibility ASIAN ECONOMIC JOURNAL 362 for determining the tax base and the rate structure of all taxes lies with the central government Except for taxes on foreign trade (administered by the customs department), tax administration and enforcement is done by the General Department of Taxation (GDT) of the Ministry of Finance (MOF) and by provincial and district tax offices under its direction The centre determines virtually all aspects of tax policy, but the provinces effectively control tax collection, ensuring that the targets set are achieved through proper enforcement in part by providing cash incentives to provincial and district tax departments Provinces have an incentive to overreach centrally determined targets because the excess amount can be used by the province for any social or economic service (not general administration) In addition, provinces can collect some minor charges and fees, although in total these account for less than 5% of their revenues IV.3 Balancing Provincial Budgets The budget law, which assigns expenditure functions to the central and local governments, also provides financing for them either through tax revenue assignment or grants The determination of expenditures and assignment of revenues to the different levels of government is carried out through the budgetary process involving a number of steps First, the MOF issues a budget circular in June containing detailed guidelines for preparing the budget to be submitted to the MOF by July or August The guidelines are prepared on the basis of macroeconomic forecasts, the strategic framework and the projected availability of resources The guidelines also prescribe the norms for projecting expenditures under each of the heads Based on these guidelines, the provinces project current expenditures and also consolidate similar estimates they receive from the districts In a parallel process, they also prioritize their own investment projects and those submitted by the districts and communes and submit them to the Ministry of Planning and Investment (MPI) Similarly the central line ministries submit forecasts of current expenditures to the MOF based on the guidelines, and investment projects to the MPI These ministries also prepare the estimates with respect to the National Programmes (see below) – the specific purpose transfers to local governments The MPI then finalizes the investment outlay of the central government and each of the provinces The GDT and the customs department prepare forecasts of revenues and the State Bank of Viet Nam (the Central Bank) provides an estimate of borrowing Finally, the MOF puts together the estimates of revenue from domestic and foreign sources and establishes budgeted recurrent and investment expenditures to balance the revenues As a rule, the central expenditure forecasts made by the provinces and line ministries are far in excess of the available resources, two or three rounds of negotiations are required between the budget department of MOF and the provinces and other spending agencies Once the expenditures of each of the provinces are finalized, revenues are assigned to meet these expenditures through a combination of methods Certain Central Revenues Assigned Revenues Shared Revenues 1993 1994 1993 1994 1993 1995 External trade taxes Special consumption tax Profits and depreciation of central enterprises Revenue from major minerals (oil) Personal income tax External trade taxes Special consumption tax Profits and depreciation of central enterprises Revenue from major minerals (oil) Land and housing tax Slaughter tax Licence fee/taxes Registration fee Depreciation and tax on capital use and profits of commercial enterprises Profits tax Taxes on lottery Import/export tax at the land border Transportation fees 10 Revenue from forestry Agricultural tax Land and housing tax Slaughter tax Licence fee/taxes Registration fee Depreciation and tax on capital use and profits of commercial enterprises Personal income tax (Except in Ba Ria-Vung Tau) Taxes on lottery Transportation fees 10 Revenue from forestry 11 Other minor fees and taxes Six provinces of the Mekong River delta received shares of agricultural taxes ranging from to 60% The remaining provinces received the entire collections Turnover tax Turnover tax (39 Provinces received a 100% share and the remaining received varying shares depending on the difference between projected expenditures and all assigned revenues) 45 provinces received the entire collections from profit tax The remaining most prosperous provinces received 50% of the tax collected in the province ASIAN ECONOMIC JOURNAL Table Revenue Assignment to Provinces in Viet Nam 1993–94 364 FISCAL DECENTRALIZATION AND POVERTY 365 realistic solution is to consider the entire expenditure of the provinces (excluding the small amount of fees and charges they levy) as a transfer since provinces not have independent power to raise taxes The critical factor in determining transfers is thus the preparation of the expenditure budget at the provincial level, and the relevant test in evaluating them is the distribution of expenditures across the provinces – whether they enable the poorer provinces to provide a given level of public services at reasonable tax rates As already noted, expenditure determination is beset with a number of problems The process of selecting investment projects is both complicated and nontransparent, and is certainly not based solely on consideration of the relative needs of the provinces The fact that provinces can use ‘excess’ revenue collections as they wish advantages the more prosperous provinces The norms specified as the basis for projecting current expenditures not adequately represent needs nor are expenditures finally allocated according to the specified norms Some attempt is made to take account of cost differences by specifying different norms for cities, plains, midland and coastal areas, low mountainous and remote areas and highlands, but it is not clear that the central government has adequate cost information for this purpose In addition, the constraint on resources causes the norms to be set too low to provide reasonable levels of services.10 Inter-Provincial distribution of social and economic infrastructures is thus less a matter of objective analysis than of negotiation and bargaining In the final analysis, the allocation of expenditures basically responds to bureaucratic and political judgements at the central level, although the relationship between political leaders at the central and provincial levels also appears to play an important role in expenditure allocation Uncertainty in revenues renders planning for the medium term difficult Moreover, larger revenue collections in a province in one year result in higher targets for the next year and appear, in at least some cases, to result in a lower provincial share of turnover taxes In Ha Noi, for example, revenue collections in 1993 were more than 50% higher than in the previous year and exceeded the budget estimates by 15% Much the same happened in 1992 Consequently, the share of turnover tax accruing to the city was reduced from 70% in 1992 to 36% in 1993 and was further reduced to just 6.3% in 1994 Another source of possible inequity is in the system of revenue projection itself The tax department consistently tends to underestimate revenues so that it can easily fulfil the targets set This is in the interest of provinces as well, since collections in excess of the targets can be spent by them Unsurprisingly, actual 10 In the case of education, for example, on an average, per capita expenditure in 1991–92 was just about US$1 and as over 80% was spent on teachers’ salaries alone, little was left for books, furniture and educational aids In fact, in Soc Trang, one of the poorer provinces, per student expenditure was less than US$2 The situation is equally bad in the case of economic services In Thanh Hoa, for example, the sanctioned budget for strengthening embankments is less than 10% of what is requested, with the result that the province must mobilize a lot of voluntary labour from the community even to strengthen the weakest segment of the embankments The situation is similar in the case of other services ASIAN ECONOMIC JOURNAL Table Revenues and Expenditures – Targets and Estimates Provinces High-Income Middle-Income Low-Income All Provinces Per Capita Revenues – 1993 Per Capita Expenditures – 1993 Targets (Dongs ’000) Latest Estimate (Dongs ’000) Increase in Estimates over Targets (Dongs ’000) Percentage increase Targets (Dongs ’000) Latest Estimate (Dongs ’000) Increase in Estimates over Targets (Dongs ’000) Percentage increase 656.43 95.43 54.53 278.60 758.10 111.19 69.92 323.89 10.67 15.76 15.39 45.29 15.5 16.5 28.20 16.30 178.83 95.65 104.73 126.54 230.2 122.45 135.76 162.99 51.67 26.8 31.03 36.45 28.9 28.0 29.6 28.8 Source: Bird, Litvack and Rao (1995) 366 FISCAL DECENTRALIZATION AND POVERTY 367 revenue collections have exceeded the targets in every single province since 1990 (Table 4) Although a larger share of some of the taxes collected in higherincome provinces goes to the centre in per capita terms, the richer provinces still retained higher excess collections and therefore had higher per capita expenditures Actual per capita expenditures exceeded the budgeted amounts by D 51,670 in high-income provinces, by D 26,800 in middle-income provinces, and by D 31,030 in low-income provinces Thus, the system has worked to the relative advantage of the richer provinces To summarize, the system of fiscal arrangements and the design of intergovernmental transfers in Viet Nam can clearly be improved in a number of respects First, local authorities have very little autonomy and flexibility in deciding the level and composition of expenditures Second, the norms used to make projection are neither scientific nor relevant in the final analysis Third, the ad hoc nature of fiscal arrangements creates both uncertainties and disincentives for provincial governments Finally, the provision that revenues in excess of targeted amounts may be retained has disproportionately helped the richer provinces IV.5 Equalizing Effect of Transfers Although the provinces accounted for almost 35% of total public expenditures in Viet Nam the amount they spent in absolute terms seems unlikely to be large enough to make a significant dent on the poverty problem In 1992, per capita expenditure of the provinces was just about 126,000 dongs or about US $12 (Table 5) which does not amount to much even considering the relatively low unit cost of providing public services As capital expenditures constituted about 20% of the total, on average, local governments had little more than $2 (US) per head to invest The absolute level of resources available to local governments in Viet Nam is so low as to make it difficult for those governments to provide even the most minimal level of services The basic inadequacy of local fiscal resources has been exacerbated by stabilization policies since 1989, which have severely compressed investment expenditures In 1991, capital expenditure in constant prices was actually lower than the corresponding figure for 1985 by 12.3%.11 The compression appears to have been especially marked with respect to expenditures on agriculture and irrigation, and to some extent, roads Although the share of government expenditure in GDP increased from less than 20% in 1985 to 23% in 1992, expenditures on agriculture, irrigation and roads – the three most identifiable and important items from the viewpoint of poverty alleviation – actually declined Unfortunately, the distribution of central government expenditure by province is not available Although it is possible that such expenditure may be allocated to some extent to offset the disequalizing effects of provincial expenditure, only 11 Government investment expenditure at constant (1982) prices in 1991 was 21,762 dongs as compared to 24,839 dongs in 1985 See, Bird, Litvack and Rao (1995, p 11) 368 ASIAN ECONOMIC JOURNAL Table Distribution of Per Capita Provincial Expenditures by Region (1993) (’000 dongs) Per capita GDP (1989 prices) Poverty Ratio Capital Expenditure Total Expenditure 332.5 448.4 277.6 331.2 380.8 1117.0 472.0 478.2 59 49 71 49 50 33 48 51 22.3 20.5 13.5 20.4 25.4 31.8 13.7 19.9 119.1 126.3 83.0 122.0 134.5 235.1 99.1 126.1 Northern Mountains Red River Delta Central Coast-Northland Central Coast-Southland Central Highlands Northeast of Southland Mekong River Delta Average the latter can be analysed here In general, as Table shows, per capita provincial expenditures are clearly higher in more prosperous regions The highest budgeted per capita expenditure was in the North-East of Southland (Ho Chi Minh City) where per capita income was the highest and the poverty ratio was the lowest Similarly, the lowest per capita expenditure was in the North-Central coastal region where per capita income was the lowest and the poverty ratio was the highest A similar pattern emerges for expenditures on different items for the two years shown in Table In aggregate, per capita expenditure in the high Table Per Capita Provincial Expenditures (1993) (’000 dongs) High-Income Provinces Middle-Income Provinces Low-Income Provinces All Provinces 1992 (Actual) Capital expenditure Current expenditure: of which: Education Health Total expenditure 34.6 126.3 22.0 13.7 160.9 14.9 73.6 17.3 7.8 88.5 20.8 79.7 17.4 7.8 100.5 25.0 98.1 19.4 10.4 123.1 1993 ( Budget Estimates) Capital expenditure Working capital for SOEs Current expenditure, of which: Economic services Education Health Total expenditure 27.0 12.4 139.2 40.4 26.5 14.7 178.6 14.0 2.8 78.9 11.1 21.8 9.3 95.7 19.9 2.4 82.5 13.7 23.3 4.4 104.7 19.9 5.6 100.6 21.9 23.0 11.3 126.6 Note: High-income provinces are those with per capita income more than 450,000 dongs; middleincome provinces are those with 300,000–450,000 dongs and low-income provinces are those less than 300,000 dongs 369 FISCAL DECENTRALIZATION AND POVERTY Table Correlation Coefficients of Per Capita Expenditures with Capacity and Need Variables Current Expenditure A Variables Representing ‘Capacity’ Per capita GDP 0.574* Per capita agricultural −0.424* production Per capita industrial 0.479* production Per capita production 0.493* (Agriculture + Industry) B Variables Representing ‘Need’ Population density 0.324* Road length/sq km area 0.050 Agricultural productivity −0.228* Infant mortality rate 0.093 Illiteracy rate 0.160 Capital Expenditure 0.338* −0.354* 0.366* −0.351* 0.243* 0.279* 0.179 0.349* 0.122 −0.282* 0.144 0.214 0.282* −0.388* Total Expenditure 0.543* −0.426* 0.327* −0.368* 0.207 0.445* 0.236* 0.216 0.136 0.368* 0.170 0.132 −0.008 −0.277* 0.053 0.140 0.239* 0.100 −0.350* 0.244* 0.365* 0.283* 0.035 −0.257* 0.086 0.163 0.323* 0.092 −0.305 0.174 0.259* Notes: 1992 – Actual 1993 – Budget Estimates * denotes significance at least at 5% level income provinces was 31% above average in 1992 and 41% above in 1993, though in some services like education the inequality was much less pronounced The positive and significant correlation of per capita expenditures with per capita incomes in different provinces both in 1992 and 1993, confirms that the relatively more affluent provinces have higher per capita expenditures Two important inferences emerge from this discussion First, the resources available at the provincial level are so low in absolute terms that they are unlikely to have more than a very limited impact on poverty Second, the distribution of resources among the provinces appears to favour the relatively better-off provinces who spend more in per capita terms Although unit costs of providing some public services may be higher than the national average in more urbanized areas, others will be lower Cost differentials alone seem unlikely to account for these results Indeed, in the north mountainous region, where low population density means that the unit costs of providing public services are also likely to be well above average, per capita expenditures were actually below average The correlation coefficients reported in Table confirm that provinces with higher per capita GDP had higher per capita expenditures The results show that both current and capital expenditures are higher in more developed provinces Per capita capital and current expenditures are significantly related to per capita industrial output, but have a significant negative correlation with per capita agricultural output and productivity Per capita expenditures were also higher in more densely populated provinces, which implies that higher unit costs in mountainous and remote areas are not adequately reflected in the determination of aggregate expenditures Actual per capita expenditure in 1992 had no significant association 370 ASIAN ECONOMIC JOURNAL Table Inter-Provincial Variations in Per Capita Expenditures: Regression Results (Log-linear equations) Independent variables Total Expenditure (1992) Total Expenditure (1993) Current Exp (1992) Capital Exp (1993) 0.771 (0.726) 0.651* (6.639) −0.076 (−1.208) −0.355* (−2.129) 0.245* (2.268) 0.075 (0.424) 0.041 (0.771) – 1.316 (1.202) 0.499* (5.259) −0.021 (−0.318) −0.485* (−2.700) 6.305* (2.693) 0.090 (0.487) 0.061 (1.097) – 0.347 (0.308) 0.650* (6.974) −0.117 (−2.465) – 0.244 (0.217) 0.578* (6.497) −0.108 (−2.296) – – – – – Teacher-student ratio – – Hospital beds per 1000 persons K2 F – – 0.494 9.444 0.412 7.078 −0.015 (−0.325) −0.187 (−1.599) 0.1611 (0.718) 0.294* (2.617) 0.541 11.206 0.058 (−1.186) 0.020 (0.171) 0.230 (0.992) 0.246* (2.131) 0.509 8.699 Constant Per capita GDP Population density Agricultural productivity Illiteracy rate Infant mortality rate Length of roads per sq km area Enrolment ratio * Significant at least at 5% level with other ‘need’ variables such as infant-mortality rate or the literacy rate though the latter showed significant correlation with budgeted expenditure in 1993 The regression results for inter-provincial differences in per capita current, capital and total expenditures are presented in Table 8, generally confirm these observations In all the equations, the regression coefficient of per capita GDP is positive and significant for both 1992 and 1993 Similarly, population density shows significant diseconomies of scale though the rate of increase in expenditures was lower as the rate of population density increases (log-linear equation) These regressions suggest, however, that there is some attempt to spend more in provinces with lower agricultural productivity and higher illiteracy rate But per capita expenditures were not significantly related to other need variables such as infant mortality and road length per sq km of area Unfortunately, data on provincial expenditures are available at the required level of disaggregation only for the education and health sectors Similar correlation and regression analysis was carried out for per capita education and health expenditures with various ‘capacity’ and ‘need’ variables (Bird, Litvack and Rao, 1995) with broadly similar results Expenditure on education was, for example, higher in provinces with a higher illiteracy rate In the case of health 371 FISCAL DECENTRALIZATION AND POVERTY Table Dependent Variable Per capita revenues – 1993 Per capita expenditure – 1993 Per capita expenditure – 1994 Regression Equations Constant Reg Coeff Per Capita GDP K2 F –3.5445 (–3.7741)* 2.6991 (4.6220)* 4.1612 (7.2891)* 1.4044 (9.0841)* 0.4067 (4.2307)* 0.1975 (2.1075)* 0.6152 82.5262 0.2489 17.8988 0.0632 4.4414* Notes: Both dependent and independent variables are in logarithmic form * Significant at least at 5% level Figure Equalization in Viet Nam Ln Per Capita Revenue/Expenditure Revenue-93 Exp-93 Exp-94 5 5.5 6.5 7.5 8.5 Ln Per Capita GDP expenditures, significant positive correlation with population density perhaps suggests inadequate recognition of cost disabilities Although per capita health expenditure has no correlation with such ‘need’ variables as infant mortality rates, it is significantly influenced by the number of health workers and hospital beds Interestingly, although budgeted expenditures on education and health in 1993 in different provinces were not significantly related to per capita GDP, actual expenditures in 1992 were higher in provinces with higher per capita GDP The difference between planned and actual expenditures appears to result from the ability of more prosperous provinces to collect larger than targeted revenues In spite of the positive relationship between per capita expenditure of the provinces and per capita GDP, there has been a significant degree of equalization across provinces This can be inferred from the difference in the income elasticities of revenue collections and expenditures estimated by employing a log-linear regression model for the cross-section of the provinces in 1993 The estimates presented in Table show that income elasticity of expenditures (0.407) was appreciably lower than that of revenues (1.404) Thus, expenditures are distributed more equally than revenues and, as may be seen from Figure 1, the overall effect ASIAN ECONOMIC JOURNAL 372 of the transfer system is clearly redistributive Further, the degree of equalization increased between 1994 and 1993 While the income elasticity of provincial expenditure in 1993 was 0.4, it was just about 0.2 in 1994 Even if a part of the difference in the elasticities may be accounted for by tax spillovers (richer provinces collecting revenues from the residents of poorer provinces), it would appear that with all its imperfections, the general purpose transfers have a significant redistributive effect IV.6 Specific Purpose Transfers in Viet Nam Even in a system in which the general-purpose transfers fully offset local fiscal disabilities, specific-purpose transfers are necessary to ensure that the public services with inter-jurisdictional spillovers are provided in optimal quantities In addition, with respect to certain priority or meritorious public services like poverty alleviation, the centre may have to ensure that minimum levels are provided throughout the country Additional specific-purpose transfers are then necessary to alleviate the effects of differential provincial capacities to provide services related to poverty alleviation In Viet Nam the central government has introduced 32 different special programmes in the education, health and social welfare sectors to cope with the perceived inadequacy of provincial spending on specific items These programmes are funded by the central government, but implemented by the local governments Not all of them are specifically directed at poverty alleviation, either directly or indirectly There are nine programmes on health care, 12 on education and training, and the balance relate to social, cultural and other areas Total expenditure on these programmes in 1993 amounted to only 1615 bn dongs, or just about 4% of total expenditures or 12% of provincial expenditures By and large, the distribution of expenditures on these National Programmes across provinces seems equitable as may be seen from Table 10 Though the programmes are for specific purposes, the amount of money is distributed so thinly across different programmes and provinces that it is doubtful whether they can make an appreciable difference to the level of services One important central programme that is specifically targeted to alleviate poverty is a subsidized loan programme introduced by the Treasury and implemented through the Ministry of Labor for self employment for the unemployed The programme was introduced in mid-1992, and budgeted expenditure was about D 300 bn in 1993 The loans are given to individuals (D 50 bn) and to small enterprises and workshops (D 200 bn) The scheme covers Ha Noi and Ho Chi Minh cities and mountainous low density provinces Loans for self-employment at subsidized interest rates are given after scrutinizing applications submitted to the Provincial Peoples’ Committees The process is similar for small enterprise loans, which are not directly targeted to the poor, but are given to generate employment Loans carry a monthly interest rate of 0.5% for loans up to one year, 0.4% for loans up to years, and 0.3% for loans up to years 373 FISCAL DECENTRALIZATION AND POVERTY Table 10 National Programmes on Education and Health Programmes High-Income Provinces Middle-Income Provinces Low-Income Provinces All Provinces Health programmes Central Programmes Provincial and District Programmes Commune Programmes Total 2.81 21.92 3.48 17.90 4.85 19.64 3.65 19.78 0.18 24.91 0.36 21.74 0.60 25.09 0.37 23.80 Education programmes Pre-primary Primary Jr secondary Sr secondary Others Total 2.76 18.37 8.72 4.19 1.96 35.96 1.31 16.12 7.94 2.98 1.20 29.48 1.38 14.44 10.00 3.10 1.81 30.78 1.83 16.40 8.80 3.43 1.64 32.07 This employment programme could be useful but at present it suffers from a number of shortcomings First, it is only a small pilot programme in two cities and a few provinces – and, as mentioned earlier, the incidence of poverty in the two cities is relatively low In terms of the amount of money, D 300 bn is less than 0.5% of the total budget Second, although the loans to enterprises are ostensibly given to generate employment, the recipients may be quite affluent, and there is no mechanism in place to ensure that these enterprises in fact generate the number of jobs proposed, once the loan is received Third, the maximum individual loan is D 500,000 or about $45 (in Ho Chi Minh city, it is D 600,000) Even at a 25% rate of return, the additional income generated will only be 125,000 or about $12 per year: any impact on the living conditions of the poor is going to be marginal Moreover, the fact that the loan is given for a maximum of three years makes it more difficult for poor persons to benefit from the scheme Finally, while obviously repayment capacity should be taken into account to some extent in any loan programme, there is no explicit attempt to allow for the intensity of poverty in determining who benefits from this programme The available information on the distribution of expenditures on the programme across provinces shows that per capita expenditures were significantly higher in richer provinces, as may be seen from Figure V Reorganizing Intergovernmental Fiscal Arrangements for Poverty Alleviation As Viet Nam makes a transition from central planning to market-determined resource allocation, intergovernmental fiscal arrangements need to be reoriented to ensure responsive provision of public services corresponding to the diversified demands and varied resources and potential of different regions The growth 374 ASIAN ECONOMIC JOURNAL Distribution of Expenditure on National Programme on Hunger Eradication Ln Per Capita Expenditure Figure 11 10 10 11 12 13 14 15 16 Ln Per capita GDP Notes: The fitted regression equation is: LnE = −8.7538 + 0.7844 Ln Y * K2 = 0.126* (−2.246) (2.625) where E refers to per capita expenditure on the programme and Y, per capita GDP Figures in the parentheses are ‘t’ values of the regression coefficients * denotes significant at 5% level potential of the economy may be best realized and the faster improvement in the consumption standards of the poor achieved when public services respond to the diversified preferences of different regions The effectiveness of decentralized governments in efficient provision of public services can be enhanced by reorienting intergovernmental fiscal arrangements to provide incentives and promote accountability, replacing the negotiated system with one which is rule-based, transparent, and properly designed to achieve the objectives of offsetting the fiscal disabilities of poor provinces and ensuring minimum standards of ‘merit goods’ (such as poverty alleviation) throughout the economy An important way to ensure appropriate incentives and accountability in the provision of public services is through linking the revenue raising and expenditure decisions of sub-central governments at the margin One way to this would be for provinces to have greater power to raise revenues At present, the provinces cannot vary the levels of public services even if their residents would be willing to pay higher taxes because they not have the right to determine the rates of any taxes Provinces can increase spending only when the actual collection of revenues assigned to them exceeds the budgeted targets or by levying some minor charges and fees Of course, the power to levy taxes whose bases are mobile across different provinces should remain with the centre, and provincial governments should be restrained from imposing taxes that will basically be exported to other areas The basic principles of local revenue assignment are: (i) local own-source revenues should ideally be sufficient to enable at least the richest local governments to finance from their own resources all local services primarily benefiting local residents (as opposed to those with significant externalities such as education); and (ii) as far as possible, local revenues should be collected from local residents only, preferably in relation to the perceived benefits they receive from local services (Bird, 1993) When transfers are needed to finance provincial expenditures, ideally they should both provide incentives for provincial revenue mobilization and, as a FISCAL DECENTRALIZATION AND POVERTY 375 rule, allow for some degree of equalization The critical point is that provincial governments must, if they are to be held accountable for their actions, have some responsibility for determining tax rates This would both allow them to vary rates to collect larger revenues to finance higher levels of public services if they so choose and at the same time allow the central government to design its transfers in such a way as to ensure that provincial fiscal efforts were not discouraged by the receipt of such funds Assigning at least some independent revenue-raising authority to the provinces is essential to establishing a linkage between revenue raising and expenditure decisions at the margin Of course, if the power to levy important taxes is assigned to provincial governments, inevitably richer Provinces will collect larger revenues To offset this disequalizing effect, as just noted, transfers have to be designed to provide sufficient revenues to provincial governments to carry out a ‘standard’ (minimum) set of provincial expenditure, as set for example by a revised (and more accurate) set of norms, provided they levy taxes at average national rates In the evolution of an objective system (as opposed to the current negotiated system) of determining provincial expenditure requirements, the development of appropriate norms for current and capital expenditure is important In principle, it is not difficult to work out the precise design and implementation of such a transfer system, if adequate information on the cost and need variables are collected.12 In practice, in a developing country like Viet Nam it is probably better to keep the system simple by using unit costs (e.g per student) adjusted only for easily ascertainable factors such as population density Sensible local government decisions require more stability and certainty in financial arrangements than now prevails Although Viet Nam’s new budget law should improve matters in this respect, a more scientific method of forecasting revenues and expenditures would also be an improvement As in the case of current transfers, simpler and more transparent arrangements in determining investment allocations are also needed Another area where reform seems needed is in regard to the National Programmes initiated by the centre Most of these programmes are so small they seem unlikely to have any significant impact on anything It would seem more sensible to focus on a few programmes that might have an impact on poverty reduction Providing drinking water, family planning, and adult literacy, for instance, are programmes that would appear useful from this perspective Programmes to combat widely prevalent diseases (like malaria and goitre) may also of course be essential Given the nation-wide externalities from spending on human capital formation, provincial initiative in these areas may be encouraged by specificpurpose matching grants There may also be a place for such grants, at higher rates of subsidization, in mountainous regions and for ethnic minorities If the provinces are given the right to levy and collect some taxes as suggested above, the introduction of specific-purpose transfers with matching resource requirements 12 For examples of an analysis along these lines, see Ahmad (1996) ASIAN ECONOMIC JOURNAL 376 should result in greater provincial participation and hence augment the resources for such special programmes Equally important is the need to maintain local initiative and flexibility in implementing the National Programmes It would seem appropriate to have a set of nationally important schemes eligible for assistance Each province should be able to choose from among these schemes subject to a provincial ceiling of central assistance This procedure would enhance local initiative, and ensure that the provision of public services conformed to local priorities The matching rate could also be made to vary with the income levels of the provinces as it is unlikely that the general purpose transfers would be able to offset the fiscal disabilities of poorer provinces entirely.13 In mountainous regions and drought-prone areas and in areas in which there is large scale unemployment of unskilled labour, a rural works programme of creating wage employment might be introduced to provide infrastructure such as rural roads, creating and deepening of ponds, lakes and canals, repairing and strengthening of embankments and building school and health centres Such a programme might, for example, generate a fixed number of person-days of employment during the lean season One advantage of such a programme is its selfselection process: targeting the programme to benefit the poor is easy as only the poor will seek such employment This approach might supplement the present self-employment loan programme, which, as noted earlier, needs to be better designed and targeted In evolving improved intergovernmental fiscal arrangements, it is obviously useful to build on the existing system as much as possible by minimizing its undesirable effects and imparting the necessary, autonomy, incentives and accountability to various levels of government The key elements in this process would seem to include the following: (i) devolution of some independent revenue-raising authority to provincial governments, in particular, the right to set the rates of some provincial taxes; (ii) creation of a more adequate method of resolving vertical and horizontal imbalance through a stable, simple and transparent revenue-sharing arrangement and general-purpose grants; (iii) identification of activities for which specific-purpose transfers should be made and determination of the matching requirements that should be established for different provinces; (iv) provision of adequate stability in intergovernmental fiscal arrangements; A system along these lines should prove much more responsive to the changing needs of an emerging market economy while providing social and economic infrastructure in an efficient manner On paper, Viet Nam currently has a highly centralized public sector In practice, however, the way the system works produces unplanned decentralization and basically places the poorer provinces in a relatively weaker position A more formal system of fiscal decentralization in a 13 Higher subsidy rates may be needed in poorer areas to induce similar responses (Feldstein, 1975) FISCAL DECENTRALIZATION AND POVERTY 377 coordinated and coherent framework along the lines sketched above could prove helpful in implementing more effective policies for poverty alleviation References Ahmad, Ehtisham, Ed 1996, Financing Decentralized Expenditures Edward Elgar Publishing Company, Cheltenham Bahl, Roy, W and Johannes F Linn, 1992, Urban Public Finance in Developing Countries Oxford University Press, Oxford Bhagwati, Jagdish, 1988, Poverty and public policy World Development, 16, pp 539–556 Bird, Richard M., 1993, Threading the fiscal labyrinth: some issues in fiscal decentralization National Tax Journal (June), pp 207–227 Bird, Richard M., Jennie I Litvack and M Govinda Rao, 1995, Intergovernmental Fiscal Relations and Poverty Alleviation in Viet Nam Policy Research Working Paper No 1430 World Bank, Washington, DC Bird, Richard M and Christine Wallich, 1993, Fiscal Decentralization and Intergovernmental Relations in Transitional Economies Policy Research Working Paper No 1122 World Bank, Washington, DC Boadway, Robin and Frank Flatters, 1982, Equalization in a Federal State: An Economic Analysis Economic Council of Canada, Ottawa Bradbury, K L., H F Ladd, M Perrault, A., Rischovsky, J Yinger, 1984, State aid to offset fiscal disparities across communities National Tax Journal, 37, pp 151–170 Breton, Albert, 1990, Centralization, Decentralization and Intergovernmental Competition Institute of Intergovernmental Relations, Queen’s University, Kingston Brown, C C and Wallace Oates, 1987, Assistance to the poor in a federal system Journal of Public Economics, 32, pp 307–330 Buchanan, J M., 1950, Federalism and fiscal equity American Economic Review, 40(4), pp 583– 599 Feldstein, M., 1975, Wealth neutrality and local choice in public education American Economic Review, 65, pp 75–89 Ladd, H and F C Doolittle, 1982, Which level of government should assist the poor National Tax Journal, 35, pp 323–336 Oates, Wallace, E., 1972, Fiscal Federalism, Harcourt, Brace and Jovanovich, New York Oates, Wallace, E., 1977, An economist’s perspective on fiscal federalism In Wallace E Oates, Ed., The Political Economy of Fiscal Federalism Lexington Books, Massachusetts Pauly, M V., 1973, Income redistribution as a local public good Journal of Public Economics, 2, pp 35 –58 Prud’homme, R., 1995, The dangers of decentralization World Bank Research Observer, 10(2), pp 201–220 Ranis, Gustav, 1995, Another look at the East Asian miracle World Bank Economic Review, 9(3), pp 509 –534 Rao, M G and A Das-Gupta, 1995, intergovernmental transfers and poverty alleviation Environment and Planning C: Government and Policy, 13(1), pp 1–23 Rondinelli, Dennis, A., 1996, International Experience with Administrative Decentralization Paper presented at the seminar on Fiscal Decentralization and Rural Service Delivery, Ha Noi: Central Institute of Economic Management and the World Bank, March 15 Shah, Anwar, 1994, The Reform of Intergovernmental Fiscal Relations in Developing and Emerging Market Economies World Bank Policy and Research Series Paper No 23 World Bank, Washington, DC Tanzi, Vito, 1995, Fiscal Decentralization Paper at Annual Bank Conference on Development Economics World Bank, Washington, DC ASIAN ECONOMIC JOURNAL 378 Tresch, R W., 1981, Public Finance: A Normative Theory Business Publications, Plano Texas Van de Walle, Dominique, 1996, Infrastructure and poverty In Household Welfare and Viet Nam’s Transition to Market Economy (manuscript) World Bank, Washington, DC Wiens, Thomas, J., 1996, Agriculture and rural poverty In Household Welfare and Viet Nam’s Transition to the Market Economy (manuscript) World Bank, Washington, DC World Bank, 1993a, The East Asian Miracle Oxford University Press, Oxford World Bank, 1993b, Viet Nam: Transition to the Market Report 11902-VN World Bank, Washington, DC World Bank, 1995, Columbia Local Government Capacity: Beyond Technical Assistance Report No 14085 – CO World Bank, Washington, DC World Bank, 1996, Viet Nam: Fiscal Decentralization and the Delivery of Rural Services Draft Report No 15745 VN World Bank, Washington, DC ... and the destitute The experience of such Asian economies as Taiwan (China), South Korea, Indonesia, Malaysia and China underlines the importance of public investment in rural infrastructure and. .. Inter-Provincial distribution of social and economic infrastructures is thus less a matter of objective analysis than of negotiation and bargaining In the final analysis, the allocation of expenditures... facilities, access to information and knowledge, markets and technology and above all basic education and primary health care in Viet Nam are needed to achieve appreciable reduction in poverty in the