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Fiscal decentralization and convergence in government spending in Malaysia

Yusof, Yusniliyana and Kalirajan, K. and Mohamad, Azhar (2020) Fiscal decentralization and convergence in government spending in Malaysia. International Journal of Finance and Economics. E-ISSN 1099-1158

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In this study, we highlight the influence of the federal system on the development expenditure of the states, which is crucial for socio-economic development. First, we examine whether there is a convergence in development expenditure across Malaysian states. Second, we investigate the importance of decentralization in affecting the pattern of development expenditure in the short-term and in the long-term. The convergence analysis utilizes annual growth data from 2000 through 2015 for the short-term and the averages of 3- and 5-year growth for the long-term. In this study, we employ the panel data approaches of pooled OLS, fixed effects and random effects estimation procedures. The findings provide empirical evidence of the convergence of development expenditure across the states in Malaysia in both the short-term and the long-term. Generally, all fiscal decentralization indicators (state per capita revenue, state own-source per capita revenue, state own-source revenue as a share of total revenue and inter-state fiscal capacity) are imperative in influencing the fiscal behaviour of state governments in Malaysia. These indicators, as well as assistance from the federal government in the form of transfer payment, are very much needed to strengthen the expenditure capacity of the Malaysian states. © 2020 John Wiley & Sons Ltd

Item Type: Article (Journal)
Additional Information: 3334/84731
Uncontrolled Keywords: Convergence, Government spending, Decentralization, Developing country
Subjects: H Social Sciences > HJ Public Finance
H Social Sciences > HJ Public Finance > HJ7451 Expenditures. Government spending
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User: Dr Azhar Mohamad
Date Deposited: 14 Nov 2020 22:57
Last Modified: 14 Nov 2020 22:57
URI: http://irep.iium.edu.my/id/eprint/84731

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