Title:
FISCAL POLICY INSTRUMENTS AND ITS IMPACT ON THE GROWTH LEVEL OF MALAYSIAN ECONOMY

Authors:
Muhamad Abdul Aziz Muhamad Saleh Jumaa, Maher Ibrahim Mikhaeil Tawadrous, UAE

Abstract:

The intent of this study was to observe and recognize the influence and effect of the fiscal policy combinations chosen by the Malaysian government on the economic growth level of Malaysia. The goal is to identify and find the correlation or cause and effect relation between Gross Domestic Product level of Malaysia and the fiscal policy instruments used. In this study we tested correlation, regression and causality relations between the Gross Domestic product in Malaysia and the fiscal policy instruments during the time frame of 15 years from 2002-2016. Different empirical test done to identify if any relation exists indicates that there is some sort of relationship amongst the fiscal policy instruments and the growth rate of Malaysia. Fiscal policy is based on a theory that states that the government of a country can influence their macroeconomic productivity level by either enlarging or reducing their tax level and spending which in turn would curb the inflation to a healthy level and increase employment while at the same time help reduce poverty. The objective of the study was to investigate and find out the relationship between fiscal policy instruments and the GDP growth rate, and to find out the type and extent of the relation existing between fiscal policy instruments and economic growth. Different empirical researches have also been carried out on the implication of fiscal policy on the Gross Domestic Product with varying results. However, there isn’t much commonality between all the results as all the researches have been conducted using varying amount and various types of variables, as well as various different types of tests, were conducted. Variables were identified by the researcher and various tests have been done in the literature to discover the relation amongst the fiscal policy instruments and economic growth of a country. The correlation analysis suggests that there is a positive and strong relationship amid GDP growth and inflation. There is no direct relationship between unemployment and the GDP.  The granger causality test is used to discover if there are any cause and effect relation existing between random variables. Regression analysis is used by researchers to predict the behavior of the dependent variable based on the behavior of the independent variables in simpler words it is used to comprehend which of the independent variables are related to the dependent variables and to determine the form of this relationship. After the overall analysis of the result, the researcher concluded that the results obtained through various testing methods will be useful for decision making process.