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Jurnal Ekonomi Malaysia

50 (1) 2016 81 – 98

Sectoral Impact of Fiscal Policy in Malaysia
Impak Dasar Fiskal ke atas Sektor Ekonomi di Malaysia Impak Dasar Fiskal ke atas Sektor Ekonomi di Malaysia

Department of Economics
School of Social Sciences
Universiti Sains Malaysia
11800 Gelugor


The present study examines the responses of sectoral gross domestic product to different types of government revenue and total government expenditure. The findings are useful to determine the effectiveness of fiscal policy in different economic sectors, which were ignored by previous studies. This study involves six-variable vector autoregressions with Cholesky decompositions. The results indicate that the sectoral output, especially the output in the agricultural-related sector, is sensitive to government revenue. Additionally, a standard deviation of different government revenue shock is found to have a positive effect on sectoral output in most cases. This implies that a positive economic environment causes government revenue and economic output to increase. A rise in government income creates the expectation that government expenditure and investment will increase in the future. On the other hand, the sensitivity to government expenditure is not frequently found and their impacts are mainly positive. This is in line with economic theory. Finally, the analysis of variance decompositions shows that greater portions of the sectoral output are explained by government revenues.


Fiscal policy; Malaysia; output; vector autoregressions

Author’s Acknowledgement

I am grateful to MyESL proofreader for their proofreading and editing services. I also thank MPWS Szakif Translation Sdn Bhd for helping me to do the translation.


Export Bibliography

Hong, (2016). Sectoral Impact of Fiscal Policy in Malaysia. Jurnal Ekonomi Malaysia, 50(1), 81–98.

  title={Sectoral Impact of Fiscal Policy in Malaysia},
  author={Hong, Law Chee},
  journal={Jurnal Ekonomi Malaysia},


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