Government transparency, foreign direct investment, and tax revenue: direct and indirect effects in the case of Vietnam

This paper examines the effect of government transparency on attracting Foreign Direct Investment capital inflows and its indirect effect on government budget revenue. Grounded in Public Finance Theory, this research addresses a critical question: Can the use of government openness as a meta-public good enhance the capital inflows, which leads to a return in fiscal capacity? Using a provincial-level dataset and employing a dynamic Two-Step System Generalised Method of Moments to address potential endogeneity, the analysis reveals two key findings. Firstly, transparency acts as a significant tool to attract FDI inflows, as it reduces total registered capital, thereby filtering out speculative or rent-seeking investments. Secondly, the fiscal benefits of transparency are not primarily mediated by foreign investments but likely operate through broader channels and enhanced domestic capacity. The conclusion is that transparency is an essential meta-public good and crucial to the efficiency of the government’s allocation and stabilisation functions. Policymakers can consider this as a strategic and cost-effective alternative to traditional incentives to promote sustainable economic development for Vietnam.