Spatial spillover effects of fiscal decentralization on governance and public administration quality

Abstract

This study examines how fiscal decentralization affects the quality of governance and public administration. Using a balanced panel dataset of 63 provinces in Vietnam over the 2011–18 period and employing the spatial Durbin model, we find that governance and public administration quality develop gradually, leading to spatial spillovers across provinces. Importantly, revenue decentralization exerts a negative spatial effect on participation, transparency, accountability and control of corruption, but exhibits a positive spatial effect on public administrative procedures across regions. By contrast, fiscal transfers improve transparency, accountability and control of corruption. That is, fiscal decentralization drives local governments in ‘a race to the bottom’ when they address budget shortfall pressures.