This
issue consists of four research papers. Ahmad Zafarullah
Abdul Jalil and Noor Al-Huda Abdul Karim, in their paper
"Constraining the Spending Behavior of Subnational
Governments Through Borrowing Limitation: The Case of Malaysia",
examine the effectiveness of the control mechanism designed
to curb the incentives for fiscal indiscipline among subnational
governments in Malaysia. This paper attempts to shed some
light on the impact of this institutional control on the
spending behavior of the 13 state governments in Malaysia.
The objective is to examine, whether a decision to further
decentralize the economy in the future will be translated
into macroeconomic instability, due to the tendency of the
state governments for fiscal profligacy. Indeed, such eventuality
can be avoided if the federal government can control the
spending behavior of the state governments. Their findings
point to the conclusion that the regulation has failed to
produce a significant effect on the spending behavior of
the state governments. The results indicate that the state
governments in Malaysia manage to observe a forward-looking
behavior, implying that they are not subject to any liquidity
constraint.
Luciano
G Greco, in the paper, "Asymmetric Information and
Regional Transfers: Federalism versus Devolution",
analyzes intergovernmental transfers under asymmetric information
through adverse selection models. This paper shows that
the normative prescriptions featuring the optimal regional
grants may differ following the considered informational
setting. In other words, the right assessment of the informational
setting (either adverse selection or moral hazard) underlying
the institutional framework (either federalism or devolution)
is quite relevant. He shows that failure to correctly assess
the informational setting may generate perverse incentives
that could eventually make the system inefficient.
In
common with many advanced nations, Malaysia is undergoing
profound demographic changes that are bound to have far-reaching
economic and social repercussions in future. A critical
feature of future Malaysian society will be the need to
provide economic security to the aged people. Thus, it is
important that policy makers consider the various options
available to meet this need. While some progress has already
been made, including the introduction of the National Policy
for Older Persons in 1995, much remains to be done. Chong
Mun Ho, Brian Dollery and Qing Bin Liu, in their paper "The
Cost of Risk Sharing: The Effects of Savings Subsidization
and Longevity on Gifts, Fertility and Savings", contribute
to the literature on the demographic policy formulation
in Malaysia by considering the characteristics of potential
public pension schemes that could assist in providing economic
security to elderly Malaysians. In this paper, they undertake
a conceptual simulation exercise on a subsidized public
pension scheme, which embodies an old age subsidy, in order
to establish how it will affect intergenerational transfers
from child to parent (i.e., gifts), savings and fertility
in an overlapping generation economy model with and without
annuity markets.
The
relationship between economic growth and government spending
is an important subject of debate on the part of economic
researchers both at the theoretical as well as at the empirical
level. The nature of the impact of public expenditure on
growth will depend on its form. Ranjan Kumar Dash and Chandan
Sharma in their article titled "Government Expenditure
and Economic Growth: Evidence from India", examine
the impact of government developmental expenditure on India's
economic growth. The study period is from 1950 to 2006.
They employ standard time series technique (unit root test
and cointegration analysis) for their analysis. By applying
Engle and Granger two-step methodology for cointegration
analysis, they find that investment and trade have a positive
impact on the economic growth. The impact of government
expenditure on economic growth, which is the focus of this
study, is found to be positive and significant.
-
C S Shylajan
Consulting
Editor
