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Tax-and-Spend or Spend-and-Tax? Empirical Evidence from Malaysia

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  • Tan Juat Hong

    (Universiti Tenaga Nasional, KM 7, Jalan Kajang – Puchong, 43009 Kajang, Selangor, Malaysia)

Abstract

The paper investigates the causal relationships between government spending and revenue for Malaysia. The study uses annual data, a Johansen cointegration test and an error-correction model. A preliminary test shows that government revenue and expenditure are cointegrated. Empirical results support the spend-and-tax hypothesis. Furthermore, they underscore the fact that fiscal policy may not be effective enough to curb the rising budget deficits over the long term and may even reduce private saving and investment. Extensive expenditure reforms through fiscal synchronisation are suggested. Classification-JEL:

Suggested Citation

  • Tan Juat Hong, 2009. "Tax-and-Spend or Spend-and-Tax? Empirical Evidence from Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 5(1), pages 107-115.
    • Handle: RePEc:usm:journl:aamjaf00501_107-115
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    Cited by:

    1. Dizaji, Sajjad Faraji, 2014. "The effects of oil shocks on government expenditures and government revenues nexus (with an application to Iran's sanctions)," Economic Modelling, Elsevier, vol. 40(C), pages 299-313.
    2. Fuad M.M Kreishan & Mohamed Sayed Abou Elseoud & Mohammad Selim, 2018. "Oil Revenue and State Budget Dynamic Relationship: Evidence from Bahrain," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 174-179.

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