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The political economics of the Malaysian subnational governments’ fiscal behavior

  • Abdul Jalil, Ahmad Zafarullah
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    This paper attempts to shed light on the political economy of the Malaysian state governments’ budgetary behavior by tailoring hypotheses drawn from recent theoritical literature to the Malaysian institutional context and testing them empirically. Our main objective here is to examine whether state governments’ fiscal behavior can partly be explained by the political attributes and the institutional characteristics of the government and of the legislature. In particular, we will try to analyze whether the incentives for the state governments to observe a prudent spending behavior have not been undermined by the fact that they have been able to influence relevant central government decisions regarding their finance. Our estimations results show that states that are overrepresented at the executive level tend to have higher spending and deficits. However, we don’t find any correlation between overrepresentation at the Parliament and states governments’ fiscal outcomes. This can be explained by the fact that in Malaysia as is frequently the case in developing nations, the legislature is peripheral to the executive in terms of decision making power.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24988.

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    Date of creation: 2009
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    Publication status: Published in International Journal of Management Studies 1.16(2009): pp. 261-283
    Handle: RePEc:pra:mprapa:24988
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    1. Case, A., 1997. "Election Goals and Income Redistribution: Recent Evidence from Albania," Papers 177, Princeton, Woodrow Wilson School - Development Studies.
    2. Hindriks, Jean & Lockwood, Ben, 2009. "Decentralization and electoral accountability: Incentives, separation and voter welfare," European Journal of Political Economy, Elsevier, vol. 25(3), pages 385-397, September.
    3. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer, vol. 24(1), pages 155-169, 09.
    4. Dahlberg, M. & Johansson, E., 1999. "On the Vote Purchasing Behavior of Incumbent Governments," Papers 1999:24, Uppsala - Working Paper Series.
    5. Roberto Perotti & Massimo V. Rostagno & Gian-Maria Milesi-Ferretti, 2001. "Electoral System and Public Spending," IMF Working Papers 01/22, International Monetary Fund.
    6. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2004. "Yardstick competition in intergovernmental relationships: theory and empirical predictions," Economics Letters, Elsevier, vol. 83(3), pages 325-333, June.
    7. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    8. Snyder, James M, 1989. "Election Goals and the Allocation of Campaign Resources," Econometrica, Econometric Society, vol. 57(3), pages 637-60, May.
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