Intergovernmental Fiscal Relations in Vietnam

Intergovernmental fiscal relations play a fundamental role in the economic and social development of Vietnam. As in all unitary forms of government, the central government sets national policies and assists with the financing of the activities of subnational administrative units, as well as undertaking certain expenditure responsibilities directly. On the other hand, decentralization facilitates implementation of policies that reflect the preferences of inhabitants of subnational administrative units. An important objective, therefore, is to design a system that reconciles the sometimes conflicting objectives of centralization and decentralization. This report is intended to assist the government of Vietnam in designing its system of intergovernmental fiscal relations (IFR). The next section describes the political system within which intergovernmental fiscal relations are imbedded. The third section provides an overview of intergovernmental fiscal relations in Vietnam. Section IV describes the assignment of expenditure responsibilities among levels of government, Section V discusses fiscal management and budgeting, and Section VI describes and appraises the revenue side of intergovernmental fiscal relations. These sections contain descriptions of current practice, a brief statement of criteria against which they are to be appraised, an appraisal of current practice, and recommendations for improvements. Section VII describes how the present system of subventions could be replaced by an improved system of intergovernmental transfers. This discussion focuses primarily on relations between the central government and the provinces; relations between provinces and districts and between districts and communes are generally quite similar.