The increase of fiscal deficit and public debt size has motivated to study the causes of fiscal imbalances so that fiscal adjustment and consolidation can be done. Thus, this study aims to test the cointegration (long-run relationship) and direction of causal relationship between revenues and expenses by state government in Peninsular Malaysia using aggregate and main component data of revenues and expenses. An autoregressive distributed lag model (ARDL) is used to examine the cointegration and causal direction relationship between the revenues-expenses. The findings show that most of the state governments formulate revenue collection before making spending decisions in the long term. This result supports the revenue-expenditure hypothesis, in which revenue collection is determined before the spending is determined. In addition, management expenditure components are also viewed more likely to be influenced by the revenues (in terms of total and components data) compared to development spending components. Policy implications of this study clarifies that understanding the relationship between revenue and public expenditure is very important for the government to avoid prolonged fiscal deficit and to enable the government to maintain the achievement of targeted budgets.<\/p>\n","protected":false},"template":"","tags":[810,807,806,987,988],"jel-code":[],"article-type":[1329],"class_list":["entry","author-jem","post-3482","article","type-article","status-publish","tag-autoregressive-distributed-lag-ardl-model","tag-public-revenue","tag-public-spending","tag-revenue-expenditure-hypothesis","tag-state-government","article-type-normal-article"],"yoast_head":"\n