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

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Type of the article: Research Article

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 institutional 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 outcomes in one province are partly shaped by spending patterns in neighboring provinces. 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.

Acknowledgments
This study is funded by the University of Economics Ho Chi Minh City (UEH), Vietnam.

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    • Figure 1. Conceptual framework
    • Figure 2. Vietnam’s public education expenditure progress
    • Figure 3. Vietnam’s inequality progress (GINI)
    • Figure B1. Moran’s I scatterplot for GINI (50 km)
    • Figure B2. Moran’s I scatterplot for GINI (100 km)
    • Figure B3. Moran’s I scatterplot for GINI (150 km)
    • Table 1. Descriptive statistics
    • Table 2. Moran’s I at different distance thresholds (Global)
    • Table 3. Local Moran’s I results
    • Table 4. Baseline panel regressions
    • Table 5. Spatial Durbin Model (SDM) estimations
    • Table 6. Direct, indirect, and total marginal effects
    • Table A1. Spatial autoregressive (SAR) estimations
    • Table A2. Spatial Durbin model (SDM) estimations with inverse distance matrix (Wi)
    • Table A3. Selection of spatial models using AIC and robust LM tests
    • Conceptualization
      Vo Van Hung
    • Data curation
      Vo Van Hung
    • Formal Analysis
      Vo Van Hung
    • Methodology
      Vo Van Hung, Pham Thai Binh
    • Software
      Vo Van Hung
    • Visualization
      Vo Van Hung
    • Writing – original draft
      Vo Van Hung
    • Writing – review & editing
      Vo Van Hung, Pham Thai Binh
    • Funding acquisition
      Pham Thai Binh
    • Supervision
      Pham Thai Binh
    • Validation
      Pham Thai Binh