Tax Income and Income Inequality in Vietnam Using Provincial-Level Evidence
This study analyzes provincial-level data in Vietnam from 2010 to 2022 and finds that while total tax revenue has little impact on income inequality, the intensity of local tax collection actually exacerbates regional disparities, suggesting that government spending policies are more critical than the tax system for reducing inequality.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
In the complex machinery of a nation's economy, two levers are often pulled to try and make life fairer for everyone: collecting money through taxes and spending that money on public services. Taxes are the funds governments gather from people and businesses, while income inequality is the measure of how unevenly that money is distributed among the population. Ideally, a tax system acts like a gentle hand, taking a bit more from those who have plenty and using those resources to support those who have less, thereby smoothing out the gaps between rich and poor. For decades, Vietnam has been a story of rapid economic growth, lifting millions out of poverty, yet a stubborn question remains: does the way the country collects its taxes actually help close the gap between its wealthier regions and its poorer ones, or does it leave the divide untouched?
A recent investigation into this question looked closely at the financial records of every province in Vietnam over a twelve-year period, from 2010 to 2022. The researchers gathered data on how much money each region collected in taxes and compared it against the measure of inequality within that same region. They broke the tax revenue down into its main parts: money collected from people's earnings, money collected from the sale of goods and services, and money collected by local authorities themselves. By examining these figures side by side with the economic size of each province, the study aimed to see if the tax system was acting as a tool for fairness or if it was simply a way to gather funds without changing who had what.
The findings revealed a surprising lack of movement. When the researchers looked at the total amount of tax money collected across the country, they found no clear evidence that it was making income inequality smaller. In fact, the data suggested that the overall tax system in Vietnam is not currently doing much to reduce the gap between the rich and the poor across different provinces. This result held true even when the researchers looked specifically at taxes on personal income or taxes on goods and services. Neither of these major tax types showed a significant ability to level the playing field during the years studied.
However, the story changed slightly when the researchers focused on how much tax money was collected locally compared to the size of the local economy. They discovered that in provinces where local authorities relied more heavily on their own tax collections relative to their economic output, income inequality actually tended to be higher. This suggests that the specific way local taxes are gathered might be widening the differences between provinces rather than narrowing them. It appears that the current structure of local tax collection may inadvertently favor areas that are already better off, or place a heavier burden on those who can least afford it, though the study notes this is an association rather than a simple cause-and-effect rule.
The researchers concluded that while collecting taxes is essential for running a country, the tax system alone is not the primary force driving equality in Vietnam. Instead, the evidence points toward government spending as the more powerful tool for change. The study suggests that how the government chooses to use the money it collects—investing in education, healthcare, housing, and social support—is likely far more important in reducing inequality than the specific method of collecting the taxes. For policymakers, this means that simply asking for more tax revenue will not fix the problem of unequal regions. To truly make a difference, the focus must shift toward designing a tax system that is fairer in its structure and, more critically, toward directing public funds in ways that directly support the most vulnerable households and underdeveloped areas. The path to a more equal Vietnam, the data suggests, lies less in the tax collector's ledger and more in the government's spending plan.
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