Fiscal Management of State Government in Peninsular Malaysia

An Analysis of Autoregressive Distributed Lag (ARDL)

Translated title of the contribution: Pengurusan fiskal kerajaan negeri di semenanjung Malaysia: Analisis autoregressive distributed lag (ARDL)

Research output: Contribution to journalArticle

Abstract

The increase of fiscal deficit and public debt size has motivated to study the causes of fiscal imbalances so that fiscal adjustment and consolidation can be done. Thus, this study aims to test the cointegration (long-run relationship) and direction of causal relationship between revenues and expenses by state government in Peninsular Malaysia using aggregate and main component data of revenues and expenses. An autoregressive distributed lag model (ARDL) is used to examine the cointegration and causal direction relationship between the revenues-expenses. The findings show that most of the state governments formulate revenue collection before making spending decisions in the long term. This result supports the revenue-expenditure hypothesis, in which revenue collection is determined before the spending is determined. In addition, management expenditure components are also viewed more likely to be influenced by the revenues (in terms of total and components data) compared to development spending components. Policy implications of this study clarifies that understanding the relationship between revenue and public expenditure is very important for the government to avoid prolonged fiscal deficit and to enable the government to maintain the achievement of targeted budgets.

Original languageMalay
Pages (from-to)97-120
Number of pages24
JournalJurnal Ekonomi Malaysia
Volume49
Issue number2
DOIs
Publication statusPublished - 2015

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Distributed lag
Revenue
Malaysia
Expenses
Fiscal deficit
State government
Cointegration
Expenditure
Government
Fiscal adjustment
Long-run relationship
Public expenditure
Fiscal consolidation
Public debt
Policy implications
Fiscal imbalance
Autoregressive distributed lag model
Government revenue

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)

Cite this

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title = "Fiscal Management of State Government in Peninsular Malaysia: An Analysis of Autoregressive Distributed Lag (ARDL)",
abstract = "The increase of fiscal deficit and public debt size has motivated to study the causes of fiscal imbalances so that fiscal adjustment and consolidation can be done. Thus, this study aims to test the cointegration (long-run relationship) and direction of causal relationship between revenues and expenses by state government in Peninsular Malaysia using aggregate and main component data of revenues and expenses. An autoregressive distributed lag model (ARDL) is used to examine the cointegration and causal direction relationship between the revenues-expenses. The findings show that most of the state governments formulate revenue collection before making spending decisions in the long term. This result supports the revenue-expenditure hypothesis, in which revenue collection is determined before the spending is determined. In addition, management expenditure components are also viewed more likely to be influenced by the revenues (in terms of total and components data) compared to development spending components. Policy implications of this study clarifies that understanding the relationship between revenue and public expenditure is very important for the government to avoid prolonged fiscal deficit and to enable the government to maintain the achievement of targeted budgets.",
keywords = "Autoregressive Distributed Lag (ARDL) model, Public revenue, Public spending, Revenue-expenditure hypothesis, State government",
author = "{Mod Asri}, Norain and {Abdul Karim}, Zulkefly and Fariza Ahmad and Raihana Ramli",
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language = "Malay",
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AU - Mod Asri, Norain

AU - Abdul Karim, Zulkefly

AU - Ahmad, Fariza

AU - Ramli, Raihana

PY - 2015

Y1 - 2015

N2 - The increase of fiscal deficit and public debt size has motivated to study the causes of fiscal imbalances so that fiscal adjustment and consolidation can be done. Thus, this study aims to test the cointegration (long-run relationship) and direction of causal relationship between revenues and expenses by state government in Peninsular Malaysia using aggregate and main component data of revenues and expenses. An autoregressive distributed lag model (ARDL) is used to examine the cointegration and causal direction relationship between the revenues-expenses. The findings show that most of the state governments formulate revenue collection before making spending decisions in the long term. This result supports the revenue-expenditure hypothesis, in which revenue collection is determined before the spending is determined. In addition, management expenditure components are also viewed more likely to be influenced by the revenues (in terms of total and components data) compared to development spending components. Policy implications of this study clarifies that understanding the relationship between revenue and public expenditure is very important for the government to avoid prolonged fiscal deficit and to enable the government to maintain the achievement of targeted budgets.

AB - The increase of fiscal deficit and public debt size has motivated to study the causes of fiscal imbalances so that fiscal adjustment and consolidation can be done. Thus, this study aims to test the cointegration (long-run relationship) and direction of causal relationship between revenues and expenses by state government in Peninsular Malaysia using aggregate and main component data of revenues and expenses. An autoregressive distributed lag model (ARDL) is used to examine the cointegration and causal direction relationship between the revenues-expenses. The findings show that most of the state governments formulate revenue collection before making spending decisions in the long term. This result supports the revenue-expenditure hypothesis, in which revenue collection is determined before the spending is determined. In addition, management expenditure components are also viewed more likely to be influenced by the revenues (in terms of total and components data) compared to development spending components. Policy implications of this study clarifies that understanding the relationship between revenue and public expenditure is very important for the government to avoid prolonged fiscal deficit and to enable the government to maintain the achievement of targeted budgets.

KW - Autoregressive Distributed Lag (ARDL) model

KW - Public revenue

KW - Public spending

KW - Revenue-expenditure hypothesis

KW - State government

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