Rafiq, SohrabZeufack, Albert2012-03-192012-03-192012-03-01https://hdl.handle.net/10986/3268This paper explores the stabilisation properties of fiscal policy in Malaysia using a model incorporating nonlinearities into the dynamic relationship between fiscal policy and real economic activity over the growth cycle. The paper also investigates how output multipliers for government purchases may alter for different components of government spending. The authors find that fiscal policy in Malaysia has become increasingly pro-cyclical over the last 25 years and establish that the size of fiscal multipliers tend to change over the growth cycle. A 1 Malaysian Ringgit rise in government (investment) spending leads to a maximum output multiplier of around 2.7 during growth recessions, and around 2 in normal times. The returns to government spending in Malaysia are greater when the focus is on public investment, as opposed to consumption. Changes in tax policy are less effective in stimulating economic activity than direct government spending. These results provide empirical backing to conjectures in the recent literature implying that procyclicality in fiscal policy reduces the effectiveness of fiscal actions in emerging markets.CC BY 3.0 IGOACCELERATORACCESS TO INFORMATIONAGENCY PROBLEMAGGREGATE DEMANDAGGREGATE SUPPLYAUTOREGRESSIONBORROWERBUSINESS CYCLEBUSINESS CYCLESCAPITAL CONSUMPTIONCAPITAL EXPENDITURECAPITAL FLOWSCAPITAL TRANSFERSCENTRAL BANKCOMPOSITION OF PUBLIC SPENDINGCONSUMERSCONSUMPTION SPENDINGCONTINGENT LIABILITIESCORPORATE INCOMECORPORATE INCOME TAXCREDIT CONSTRAINTSCREDIT WORTHINESSDEBTDEMAND CURVEDEVELOPING COUNTRIESDEVELOPMENT POLICYDIRECT GOVERNMENT SPENDINGDISPOSABLE INCOMEECONOMIC ACTIVITYECONOMIC CYCLEECONOMIC DOWNTURNECONOMIC DOWNTURNSECONOMIC GROWTHECONOMIC OUTCOMESECONOMIC RECOVERYECONOMIC THEORYELASTICITYEMERGING MARKETEMERGING MARKET COUNTRIESEMERGING MARKET ECONOMIESEMERGING MARKETSENDOGENOUS VARIABLESEXPECTED VALUESEXPENDITUREEXPENDITURESFEDERAL RESERVEFEDERAL RESERVE BANKFISCAL ACTIONSFISCAL DISCIPLINEFISCAL POLICYFORECAST HORIZONFORECASTSGDPGENERAL EQUILIBRIUMGOVERNMENT CONSUMPTIONGOVERNMENT EXPENDITUREGOVERNMENT EXPENDITURESGOVERNMENT INVESTMENTGOVERNMENT POLICYGOVERNMENT REVENUESGOVERNMENT SPENDINGGROWTH MODELSGROWTH RATEHEALTH CAREHOUSEHOLDSINCOME TAXINCOME TAXESINFRASTRUCTURE PROJECTSINTEREST RATEINTEREST RATESINTERNATIONAL BANKINVESTMENT EXPENDITURESINVESTMENT PROJECTSINVESTMENT SPENDINGINVESTMENT STRATEGYKEYNESIAN THEORYLIQUIDITYLONG-TERM INVESTMENTMACROECONOMIC CONDITIONSMACROECONOMIC POLICIESMACROECONOMIC VARIABLESMACROECONOMICSMARGINAL PRODUCTIVITYMINISTRY OF FINANCEMONETARY ECONOMICSMONETARY FUNDMONETARY POLICYMULTIPLIERSNEGATIVE SHOCKNET WORTHPERSONAL INCOMEPERSONAL INCOME TAXESPOLICY DECISIONSPOLITICAL ECONOMYPOVERTY REDUCTIONPRESENT VALUEPRIVATE CONSUMPTIONPRIVATE INVESTMENTPRIVATE SECTORPUBLICPUBLIC CAPITALPUBLIC CONSUMPTIONPUBLIC ECONOMICSPUBLIC EXPENDITUREPUBLIC EXPENDITURE REVIEWPUBLIC INVESTMENTPUBLIC SPENDINGRANDOM WALKREAL ECONOMIC GROWTHREAL EXCHANGE RATEREAL GDPRECESSIONRENT SEEKINGRETURNSRETURNS TO CAPITALRISK SHARINGROADSSALES TAXSAVINGSSOCIAL SECURITYSOCIAL SECURITY CONTRIBUTIONSSUPPLY CURVETAXTAX BASETAX CHANGESTAX CUTTAX CUTSTAX PAYMENTSTAX POLICYTAX REVENUETAX REVENUESTAX SHOCKSTAXATIONTOTAL SPENDINGTRADE BALANCETRANSFER PAYMENTSTREASURYTREASURY BILLTREASURY BILL RATEUNCERTAINTYVOTERSWEALTHWorld Bank10.1596/1813-9450-5982