A Granger Causal Analysis of Tax-Spend Hypothesis: Evidence from Malaysia

In economics, the investigation of association between government revenues (GR) and expenditures (GE) remains an essential discussion because its vital role in policy implication concerning Budget deficit. This paper aims to conduct a causal analysis these two fiscal variables (government revenue expenditure) using financial time-series data covering period from 1990 2019 Malaysia. The analyses used unit root, Johanson Cointegration, Vector Error Correction Model (VECM). Unit root test proposed tested are integrated at level first. Johanson's cointegration disclosed fact that long-run relationships exist variable. Finally, Granger causality reveals one-way relation this unidirectional is which indicates Malaysia, supported by revenues; other words, Tax-spend hypothesis supported. VECM short-run analysis, can affect significantly 11% disequilibrium be corrected short-run. supporting expenditures. study recommends avoid high risk economic problems like illusion, unnecessary burden, inflation policymakers should not imposing tax rate cut budget