Public education expenditure and income inequality in Vietnam: The moderating role of institutional qualit

Abstract

Income inequality remains a major challenge for inclusive development, particularly in emerging economies where fiscal policy plays a central role in redistributing income opportunities. This study examines how public education expenditure affects income inequality across Vietnam’s 63 provinces over the period 2011–2024 and whether insti tutional quality moderates this relationship under spatial dependence. Using panel and spatial econometric approaches, with the Spatial Durbin Model (SDM) as the primary specification, the analysis captures both within-province effects and interprovincial spillovers. The results show that public education expenditure is positively associated with income inequality in the short- to medium-term. A 1% increase in education spending raises the Gini coefficient by approximately 0.067-0.157 percentage points within provinces, with larger spillover effects observed across neighboring provinces. However, institutional quality significantly mitigates this effect. Interaction variables based on the Provincial Competitiveness Index (PCI) and the Public Administration Performance Index (PAPI) are negative and statistically significant, indicating that stronger institutional quality dampens the inequality-increasing effect of education expenditure. The findings also confirm that spatial dependence is pronounced, and education spending generates meaningful spillovers, indicating that inequality out comes in one province are partly shaped by spending patterns in neighboring prov inces. Overall, the findings suggest that expanding education budgets alone is unlikely to deliver equitable outcomes without parallel reforms that strengthen transparency, accountability, and performance-based allocation, alongside regional coordination to manage spatial externalities.