Causality between Tax Revenue and Government Spending in Malaysia

The International Journal of Business and Finance Research, Vol. 2, No. 2, pp. 63-73, 2008

11 Pages Posted: 17 Feb 2010

See all articles by Roshaiza Taha

Roshaiza Taha

Monash University-Gippsland Campus

Nanthakumar Loganathan

University Sultan Zainal Abidin

Date Written: 2008

Abstract

The trend of tax collection in Malaysia is inconsistent, changing upward and downward depending upon economic conditions. However, over a 30 year period, most years show an increasing increment in total collection. The exceptions are when there is an abnormal economic condition such as financial crisis, war or increase in world oil prices. Total tax revenue has always been a major contribution to Malaysia’s federal government revenue. Income tax is one of the surest ways to fund the government. The main objective of this study is empirically tests the causality between tax revenues and government spending in Malaysia for the past 36 years by applying an econometrics model. The results provide evidence for the existence of a long-run relationship between tax revenues and government spending with unidirectional and bidirectional causality in VAR models for the sample period 1970-2006.

JEL Classification: C01, H20, H59

Suggested Citation

Taha, Roshaiza and Loganathan, Nanthakumar, Causality between Tax Revenue and Government Spending in Malaysia (2008). The International Journal of Business and Finance Research, Vol. 2, No. 2, pp. 63-73, 2008. Available at SSRN: https://ssrn.com/abstract=1543911

Roshaiza Taha (Contact Author)

Monash University-Gippsland Campus ( email )

Monash University Northways Road,
Victoria 3842, VA 3842
Australia

Nanthakumar Loganathan

University Sultan Zainal Abidin ( email )

Kampus Gong Badak
Kuala Terengganu, 20400
Malaysia

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