Understanding Malaysian State Governments Fiscal Behavior: The Role of Intergovernmental Transfers

Ahmad Zafarullah Abdul Jalil and Noor Al-Huda Abdul Karim

MPRA Paper from University Library of Munich, Germany

Abstract: As of late, several state governments in Malaysia have been identified as having serious difficulty in meeting their financial needs, to the extent of the government being qualified as on the verge of bankruptcy. One of the explanations put forward is that state governments have been acting irresponsibly in managing finances. Thus, the question that ensues is: why do state governments behave in such irresponsible manner fiscally and financially in the first place? In this paper, we relate the financial difficulties faced by these governments within the confines of the institutional and political environment currently in place within the country. We will examine one of the institutional features of the intergovernmental system in Malaysia – the intergovernmental grants systems. More precisely, there are two hypotheses that will be tested in this research.. First, federal transfers may stimulate more spending by state governments which leads them to increase spending beyond the means available to them. Second, financial problems may be the consequence of a state governments’ incapacity to utilize tax capacities to the fullest, which in turn may be explained by the disincentives effects that are embedded (whether intended or not) within the transfer system.

Keywords: State Governments; Fiscal Behavior; Intergovernmental Relations (search for similar items in EconPapers)
JEL-codes: H72 H77 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Chulalongkorn Journal of Economics 2.20(2009): pp. 113-141

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/25188/1/MPRA_paper_25188.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:25188

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().