Measuring Fiscal Decentralisation: An Entropic Approach

Fiscal decentralisation 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 decentralisation across countries. This study helps resolve the problem by developing the fiscal decentralisation index which accounts for both fiscal autonomy and fiscal importance of subnational governments. While the 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 (Theil, 1967). It is shown how fiscal inequality can be decomposed regionally and hierarchically. These ideas are illustrated with Australia data pertaining to federal, state and local levels of governments.Fiscal Decentralisation, Fiscal Autonomy, Fiscal Importance, Australia

Fiscal Decentralisation in Vietnam: a Preliminary Investigation

Fiscal decentralisation is a complex theoretical and practical issue. The literature is currently divided on whether there is a positive or negative relationship between fiscal decentralisation and economic growth, and it appears that this is in large part due to inconsistent measures of fiscal decentralisation. In this paper, fiscal decentralisation in Vietnam will be examined, with a view to developing a fiscal decentralisation index that accounts for both the fiscal autonomy and fiscal importance of subnational governments to compare the degree of fiscal decentralisation in Vietnam with that of a range of other countries. This will facilitate subsequent (and hopefully definitive) investigations of the relationship between fiscal decentralisation and economic growth.Fiscal Decentralisation, Economic Growth, Fiscal Autonomy, Fiscal Importance, Vietnam

Exchange rate volatility and disaggregated manufacturing exports: Evidence from an emerging country

The link between export performance and exchange rate policy has been attracting attention from policymakers, academics, and practitioners for some time, particularly for emerging countries. It has been recently claimed that implementing a policy that devalues the currency in Vietnam is an important factor for enhancing its export performance. However, it is also argued that such a policy could result in the harmful consequence of exchange rate volatility. This study analyzes the link between exchange rate devaluation, volatility, and export performance. The analysis focuses on the manufacturing sector and 10 of its subsectors that were engaged in the export of goods between Vietnam and 26 key export partners during the 2000–2015 period. Potential factors that could affect this relationship, such as the global financial crisis, Vietnam’s participation in the World Trade Organization, or even the export partners’ geographic structures, are also accounted for in the model. The findings confirm that a strategy that depreciates Vietnam’s currency appears to enhance manufacturing exports in the short run, whereas the resulting exchange rate volatility has clear negative effects in the long run. The impact of exchange rate volatility on manufacturing subsectors depends on two factors, namely, (i) the type of export and (ii) the export destination. Policy implications emerging from these conclusions are presented

Long-run dynamics of exchange rates: A multi-frequency investigation

The empirical observation that purchasing power parity (PPP) holds in the long run but not in the short run has enjoyed a near-consensus status in international finance literature. However, a similar degree of agreement has not been reached with respect to the exact horizon of this “long run” aspect. To shed light on this matter, a novel approach is adopted in this paper to combine conventional time series methodology with insights from multi-frequency analyses. In particular, we simultaneously explore price-exchange-rate dynamics not only through time, but also at various horizons via a wavelet decomposition. Unit root tests applied to wavelet-based decomposed real exchange rates indicates that PPP holds at horizons consistent with the literature. With respect to the predictive value of our approach, we show that our decomposed measures provide guidance to future movements of real change rates. Additionally, we find that nominal exchangerate dynamics are dominated by activities corresponding to low frequencies. Results from this study thus enable researchers and practitioners to establish an exchange-rate modelling framework with increased efficienc

The economics of fiscal decentralisation

There is no complete overview or discussion of the literature of the economics of federalism and fiscal decentralization, even though scholarly interest in the topic has been increasing significantly over recent years. This paper provides a general, brief but comprehensive overview of the main insights from the literature on fiscal federalism and decentralization. In doing so, literature on fiscal federalism and decentralization is grouped into two main approaches: ‘first generation approach’ and ‘an emerging second generation approach’. The discussion generally covers the two notions of fiscal decentralization: ‘fiscal autonomy’ and ‘fiscal importance’ of subnational governments as the background of the most recently developed index of fiscal decentralization in Vo. The relevance of this discussion to any further development of a fiscal decentralization index is briefly noted

Systematic Risk in Energy Businesses: Empirical Evidence for the ASEAN

This paper is conducted to provide an additional empirical evidence in relation to the estimates of equity beta for energy businesses in the ASEAN-5 including Vietnam, Thailand, the Philippines, Malaysia, and Singapore. Listed energy companies for the period from 2005 to 2015 are used. Quantile regression, together with the OLS and LAD, has been used. Findings from this paper indicate that: (i) as long as the OLS and the LAD approaches are adopted, estimates of equity beta are relatively consistent across various research periods; (ii) estimates of equity beta appear to vary substantial across different quantiles; and (iii) estimates of equity beta have appeared to vary across research periods. However, as an overall level across time and methods, a level of risk faced by a company in the energy sector is below the average of the level of risk for the entire market for the above nations. Keywords: Beta, Listed Energy Firms, Quantile regression, ASEAN JEL Classifications: G11; G1

Should Vietnamese firm’s stocks be listed in a MSCI Global Equity index? Experience drawn from the sample of 30 countries

This study was conducted to investigate the argument of the increased co‐movement between the return of stocks, which are added to an MSCI Global Equity Index (MSCI Index) and the returns of the market index. It means that inclusion of the newly added stocks in an index leads to increased comovement between these stocks and the rest of the index. The MSCI Index is a broad and investable global equity benchmark and serve as the basis for over 500 exchange traded funds throughout the world. Our sample covers the MSCI Index inclusions from May 2003 to August 2008, corresponding to 16 adjustment quarters. Over this period, we have 1,274 index inclusion events over 46 countries in total. We found that inclusion into the MSCI Index leads to on average a higher beta with the national index. 21 out of the 30 countries in our sample experienced an increase in beta in the post‐inclusion period. Given the two stock exchanges in Vietnam are young in terms of a number of years since establishment and a small size of the market by the international standard, caution is required when evidence from wellestablished and matured markets used in this study is drawn. Nevertheless, the implications for listed firms in Vietnam are that their stocks will be more frequently traded by various groups of investors as long as the stocks are listed with an MSCI index, including the powerful MSCI Frontier Markets Indexes of 26 countries in the world

Equity Beta for Regulated Energy Businesses in Australia: A Revisit

This paper aims to estimate the equity beta – a key input of the Capital Asset Pricing Model, for the energy businesses in Australia in the 11-year period from 2005 to 2015. Various methods are used in this paper including Quantile Regression. Listed companies in the energy industry are considered at individual and portfolio levels. Findings from this paper are  both consistent and contrast with prior related studies: (i) energy sector in Australia face a relatively low risk level compared to the market; (ii) OLS results are higher than LAD; and (iii) QR vary across different percentiles. Keywords: Equity Beta, Quantile regression, Australia. JEL Classifications: G11; G1

Information sharing, bank penetration and tax evasion in emerging markets

Tax evasion, which is typically considered an illegal activity, is a critical problem and is considered a barrier to economic growth. A review of the literature shows that tax and social security contributions, regulations, public sector services, the quality of institutions and tax compliance, play important roles in determining the degree to which firms attempt to evade taxes. Measuring tax evasion is problematic due to data requirements and inadequacies. Few tax evasion indices have been estimated but it appears that they cannot be used for international comparisons across countries. This important issue has largely been ignored in the literature, in particular for emerging markets. Consequently, this paper is conducted to develop a new tax evasion index (TEI) using the most substantial and recent data from the standardized World Bank Enterprises Survey 2006–2017. In addition, using the newly developed TEI, the paper examines the importance and contribution of information sharing and bank penetration to the degree of tax evasion in emerging markets. The paper uses a sample of 112 emerging markets from 2006–2017 and the Tobit model in estimation. The empirical findings from the paper indicate that the average TEI during the 2006– 2017 period for emerging markets is 0.62, with a range of (0.25, 0.75). In addition, we find that information sharing and bank penetration negatively affect the degree of tax evasion, as proxied by the TEI, in emerging markets. The empirical results also confirm the view that large firms are considered to have adopted good tax compliance practices, while firms located in remote areas are more likely to evade taxes. Policy implications have emerged on the basis of the empirical findings from the paper

Financial inclusion and macroeconomic stability in emerging and frontier markets

Financial inclusion, being considered as a key enabler to reducing poverty and boosting prosperity in emerging and frontier markets such as Vietnam, is the process in which individuals and small businesses are provided with an access to useful and affordable financial products and services. The extant literature on the empirical evidence regarding the contribution of financial inclusion to macroeconomic stability is mixed. This paper investigates the linkages between financial inclusion and macroeconomic stability, which has not yet been thoroughly examined in the literature, for 22 emerging and frontier economies from 2008 to 2015, with particular focus on a potential optimal level. Using the panel threshold estimation technique, the empirical findings show that financial inclusion, as approximated by the growth rate in the number of bank branches over 100,000 account holders, is found to enhance financial stability under a certain threshold. Financial inclusion is also found to be of benefit to maintaining stable inflation and output growth. Policy implications are also discussed on the basis of the important empirical findings