Assessment of Budget Sustainability in Sarawak

Chin-Hong Puah, Evan Lau and Hui-Fern Teo

Asian Economic and Financial Review, 2012, vol. 2, issue 8, 952-965

Abstract: This study reexamines the sustainability of budget stance of Sarawak state, 1970-2008. Using the intertemporal borrowing constraint as a framework, the study tests the long-run relationship between government revenue and expenditure. Empirical results demonstrate a long-run equilibrium relationship among the variables. The cointegration test result suggests that Sarawak state’s fiscal stance satisfies the weak sustainability condition. In addition, the Granger causality test result reveals a bi-directional relationship between government revenue and expenditure. This means that fiscal authorities made simultaneous decisions on expenditure and revenue. Government revenue and expenditure will mutually reinforce each other.

Keywords: Fiscal sustainability; Cointegration; Revenue; Expenditure; GDP and Sarawak. (search for similar items in EconPapers)
Date: 2012
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