Does fiscal decentralization reduce energy poverty? Evidence from Vietnam

This study examines the impact of fiscal decentralization on energy poverty in Vietnam, a country that has experienced significant change over recent decades, with fiscal policy reform, rapid economic growth, and expansion of energy access. We use household- and provincial-level data from 2004 to 2018 and employ different model specifications, including ordinary least squares (OLS) and instrumental variable (IV) estimates and two-step system generalized method of moments (GMM) estimates. Energy poverty is measured using a set of indicators based on income, expenditure, and the quality of energy consumption, while fiscal decentralization is calculated using both narrow and broad definitions of the share of revenue of local governments to total government revenue. We find that fiscal decentralization significantly reduces energy poverty. In particular, OLS estimates show that a one standard deviation increase in fiscal decentralization leads to average decreases in the probability of energy poverty of 0.3–1.3 percentage points at the household level and 0.3 to 1.6 percentage points at the provincial level. The IV estimates are consistent, and the GMM estimates also suggest long-run effects. Strong effects are found in lower-income households in the bottom three income quantiles and poorer regions. These results underline the potential use of fiscal decentralization as a policy tool for addressing energy poverty and emphasize the need for fiscal policy reforms that include the energy sector and account for regional disparities in economic activities.