An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis

An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis

The nexus between state government revenue and expenditure is vital because it is relevant for state fiscal policy makers with respect to the budget deficit. The aim of this study is to examine the direction of causality relationship between state government revenue and expenditure in Kedah, Kelanta...

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Main Author: Nor Hidayah, Harun
Format: Thesis
Language:eng
Published: 2011
Subjects:
HJ Public Finance
Online Access:https://etd.uum.edu.my/3704/1/s804809.pdf
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id my-uum-etd.3704
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institution Universiti Utara Malaysia
collection UUM ETD
language eng
advisor Abdul Jalil, Ahmad Zafarullah
topic HJ Public Finance
spellingShingle HJ Public Finance
Nor Hidayah, Harun
An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis
description The nexus between state government revenue and expenditure is vital because it is relevant for state fiscal policy makers with respect to the budget deficit. The aim of this study is to examine the direction of causality relationship between state government revenue and expenditure in Kedah, Kelantan, Penang and Perlis. Thus, in order to investigate the cointegration between the state government revenue and expenditure, the study uses bound testing approach and Granger causality test with applying Vector Error Correction Model (VECM) and Vector autoregression (VAR) methods for the period 1980 to 2009. Besides, the study examines whether state government revenue causes state government expenditure (tax-spend hypothesis) or whether the causality runs from state government expenditure to state government revenue (spend-tax hypothesis), and if there is bi-directional causality (fiscal synchronization). Results of finding on the direction of causation are mixed: (i) For Perlis in the long-run and for Kelantan in both the short-and long-run, empirical result supports for the spend-and-tax hypothesis; (ii) Perlis in the short-run is in conformity with the institutional separation hypothesis; (iii) For Kedah and Penang, there is evidence of separated decision making of revenue-expenditure in both the short-and long-run. The policy implication of states which are consistently with spend-and-tax hypothesis suggests that budget deficit reduction can be achieved through the reduction in expenditures. While states which are in conformity with the institutional separation hypothesis, it is suggested for policy makers to find alternative so as there is a relationship between these two state fiscal variables.
format Thesis
qualification_name masters
qualification_level Master's degree
author Nor Hidayah, Harun
author_facet Nor Hidayah, Harun
author_sort Nor Hidayah, Harun
title An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis
title_short An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis
title_full An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis
title_fullStr An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis
title_full_unstemmed An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis
title_sort empirical analysis of state government revenue- expenditure nexus: the case of kedah, kelantan, penang and perlis
granting_institution Universiti Utara Malaysia
granting_department College of Arts and Sciences (CAS)
publishDate 2011
url https://etd.uum.edu.my/3704/1/s804809.pdf
_version_ 1747827630034386944
spelling my-uum-etd.37042016-04-27T07:26:53Z An Empirical Analysis of State Government Revenue- Expenditure Nexus: The Case of Kedah, Kelantan, Penang and Perlis 2011 Nor Hidayah, Harun Abdul Jalil, Ahmad Zafarullah College of Arts and Sciences (CAS) College of Arts and Sciences HJ Public Finance The nexus between state government revenue and expenditure is vital because it is relevant for state fiscal policy makers with respect to the budget deficit. The aim of this study is to examine the direction of causality relationship between state government revenue and expenditure in Kedah, Kelantan, Penang and Perlis. Thus, in order to investigate the cointegration between the state government revenue and expenditure, the study uses bound testing approach and Granger causality test with applying Vector Error Correction Model (VECM) and Vector autoregression (VAR) methods for the period 1980 to 2009. Besides, the study examines whether state government revenue causes state government expenditure (tax-spend hypothesis) or whether the causality runs from state government expenditure to state government revenue (spend-tax hypothesis), and if there is bi-directional causality (fiscal synchronization). Results of finding on the direction of causation are mixed: (i) For Perlis in the long-run and for Kelantan in both the short-and long-run, empirical result supports for the spend-and-tax hypothesis; (ii) Perlis in the short-run is in conformity with the institutional separation hypothesis; (iii) For Kedah and Penang, there is evidence of separated decision making of revenue-expenditure in both the short-and long-run. The policy implication of states which are consistently with spend-and-tax hypothesis suggests that budget deficit reduction can be achieved through the reduction in expenditures. While states which are in conformity with the institutional separation hypothesis, it is suggested for policy makers to find alternative so as there is a relationship between these two state fiscal variables. 2011 Thesis https://etd.uum.edu.my/3704/ https://etd.uum.edu.my/3704/1/s804809.pdf text eng validuser masters masters Universiti Utara Malaysia Abdul Jalil, Ahmad Zafarullah. (2009). Decentralization, Subnational Government’s Behavior and Macroeconomic Instability: The Case of Malaysia. Munich Personal RePEc Archive (MPRA), pp. 194-200. Abdullah, H., Ali, J. & M. Hylmee. (2010). Re-Examining the Demand for Money in Asean-5 Countries. Asian Social Science , Vol.6, no. 7, pp. 146-155. Albatel, A.H. (2002). The Relationship Between Government Revenue and Expenditures in Saudi Arabia. Journal of the Gulf and Arabian Peninsula, Vol. 104, no. 28, pp. 13-36. Al-Hakami, A.O. (2002). 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