A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia

In economics, the investigation of the association between government revenues (GR) and government expenditures (GE) remains an essential discussion because of its vital role in policy implication concerning the Budget deficit. This paper aims to conduct a causal analysis of these two fiscal variabl...

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Autores principales:	Khan Hanana, Marimuthu Maran, Lai Fong-Woon
Formato:	article
Lenguaje:	EN FR
Publicado:	EDP Sciences 2021
Materias:	Social Sciences H
Acceso en línea:	https://doaj.org/article/f7b49afb845a4e48aff972609991d5cb
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spelling	oai:doaj.org-article:f7b49afb845a4e48aff972609991d5cb2021-12-02T17:15:22ZA Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia2261-242410.1051/shsconf/202112404002https://doaj.org/article/f7b49afb845a4e48aff972609991d5cb2021-01-01T00:00:00Zhttps://www.shs-conferences.org/articles/shsconf/pdf/2021/35/shsconf_icmesh2020_04002.pdfhttps://doaj.org/toc/2261-2424In economics, the investigation of the association between government revenues (GR) and government expenditures (GE) remains an essential discussion because of its vital role in policy implication concerning the Budget deficit. This paper aims to conduct a causal analysis of these two fiscal variables (government revenue and expenditure) using financial time-series data covering the period from 1990 to 2019 of Malaysia. The analyses used the unit root, Johanson Cointegration, and the Vector Error Correction Model (VECM). Unit root test proposed tested variables are integrated at a level first. Johanson's cointegration test disclosed the fact that long-run relationships exist between the tested variable. Finally, Granger causality analysis reveals a one-way relation between government revenues and expenditures and this unidirectional association is from revenues to expenditures which indicates that in Malaysia, expenditures are supported by revenues; in other words, the Tax-spend hypothesis is supported. In VECM short-run analysis, government revenues can affect government expenditures significantly and 11% disequilibrium can be corrected in the short-run. In short-run and long-run revenues are supporting expenditures. The study recommends that to avoid a high risk of economic problems like a fiscal illusion, unnecessary financial burden, and inflation policymakers should not be imposing a high tax rate to cut the budget deficit.Khan HananaMarimuthu MaranLai Fong-WoonEDP SciencesarticleSocial SciencesHENFRSHS Web of Conferences, Vol 124, p 04002 (2021)
institution	DOAJ
collection	DOAJ
language	EN FR
topic	Social Sciences H
spellingShingle	Social Sciences H Khan Hanana Marimuthu Maran Lai Fong-Woon A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia
description	In economics, the investigation of the association between government revenues (GR) and government expenditures (GE) remains an essential discussion because of its vital role in policy implication concerning the Budget deficit. This paper aims to conduct a causal analysis of these two fiscal variables (government revenue and expenditure) using financial time-series data covering the period from 1990 to 2019 of Malaysia. The analyses used the unit root, Johanson Cointegration, and the Vector Error Correction Model (VECM). Unit root test proposed tested variables are integrated at a level first. Johanson's cointegration test disclosed the fact that long-run relationships exist between the tested variable. Finally, Granger causality analysis reveals a one-way relation between government revenues and expenditures and this unidirectional association is from revenues to expenditures which indicates that in Malaysia, expenditures are supported by revenues; in other words, the Tax-spend hypothesis is supported. In VECM short-run analysis, government revenues can affect government expenditures significantly and 11% disequilibrium can be corrected in the short-run. In short-run and long-run revenues are supporting expenditures. The study recommends that to avoid a high risk of economic problems like a fiscal illusion, unnecessary financial burden, and inflation policymakers should not be imposing a high tax rate to cut the budget deficit.
format	article
author	Khan Hanana Marimuthu Maran Lai Fong-Woon
author_facet	Khan Hanana Marimuthu Maran Lai Fong-Woon
author_sort	Khan Hanana
title	A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia
title_short	A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia
title_full	A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia
title_fullStr	A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia
title_full_unstemmed	A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia
title_sort	granger causal analysis of tax-spend hypothesis: evidence from malaysia
publisher	EDP Sciences
publishDate	2021
url	https://doaj.org/article/f7b49afb845a4e48aff972609991d5cb
work_keys_str_mv	AT khanhanana agrangercausalanalysisoftaxspendhypothesisevidencefrommalaysia AT marimuthumaran agrangercausalanalysisoftaxspendhypothesisevidencefrommalaysia AT laifongwoon agrangercausalanalysisoftaxspendhypothesisevidencefrommalaysia AT khanhanana grangercausalanalysisoftaxspendhypothesisevidencefrommalaysia AT marimuthumaran grangercausalanalysisoftaxspendhypothesisevidencefrommalaysia AT laifongwoon grangercausalanalysisoftaxspendhypothesisevidencefrommalaysia
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A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia

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