A study on responsiveness of the Malaysian state governments' revenues to their development expenditures

• Main Authors: Abdul Jalil, Ahmad Zafarullah, Harun, Mukaramah, Che Mat, Siti Hadijah
• Format: Conference or Workshop Item
• Language: English
• Published: 2011
• Subjects: HJ Public Finance
• Online Access: http://repo.uum.edu.my/7392/1/24-S00006.pdf; http://repo.uum.edu.my/7392/; http://www.ipedr.com

The main objective of this study is to examine the relationship between state governments’ revenue in Malaysia and their development expenditures.We seek to analyze to what extent the state governments are benefiting from the investments that they have made in the form of development projects.Given the weak temporal dimension of our sample, we will apply the generalized method of moments (GMM) as developed by Arellano and Bond (1991).The results of our estimations show that when a one-period lag is retained, the state governments’ revenue is significantly and positively associated with development expenditure.An increase in development projects will lead to an increase in state governments’ revenues.However, the results of the other two estimations show that development expenditures are not correlated with state governments’ revenue.Together these results may imply that the effect of development projects on state governments’ revenues only lasts for one year and will disappear afterwards.This in turn may be explained by the fact that most if not all development projects implemented by the state governments are rather small in scope and with immediate or short term effect. Nevertheless, the results are not sufficient for us to claim that the revenues obtained from these channels will necessarily be used for the repayment of the debt contracted to finance the projects.A further investigation is needed in order to see to what extent the proceeds from the development projects carried out by the state governments in Malaysia is used to repay their loans.