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Type :thesis
Subject :HB Economic Theory
Main Author :Abulrah, Aldahmani Hamad Mohammed Asad
Title :Analysing the impact of selected macroeconomic variables on public expenditure in the United Arab Emirates (UAE)
Place of Production :Tanjong Malim
Publisher :Fakulti Pengurusan dan Ekonomi
Year of Publication :2022
Corporate Name :Universiti Pendidikan Sultan Idris
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Abstract : Universiti Pendidikan Sultan Idris
The objective of this study is to evaluate the impact of selected macroeconomic variables on public expenditure in the UAE during the 1975-2020 period, based on the Wagner (1883) law of increasing state activities. The study employs several estimation techniques including the Gregory-Hansen cointegration approach, Autoregressive Distributed Lag (ARDL) bounds testing technique, the Canonical Cointegrating Regression (CCR), Fully Modified Ordinary Least Squares (FMOLS) estimators, the Non-linear ARDL (NARDL) method, and the Toda-Yamamoto causality procedure. The results of the cointegration tests demonstrate the presence of a long-term relationship between public expenditure and the selected variables. Further, the results of the different estimation techniques illustrate that oil price, tax burden, fiscal deficit, outward flow of money and FDI, and interest rate influence the level of public expenditure significantly both in the short-term and the long-term. Moreover, adopting the NARDL method, the results suggest that interest rate has an asymmetric effect on public expenditure, with positive and negative shocks influence public expenditure level differently. Following the Kuznets hypothesis framework, the results illustrate a significant inverted ‘U-shaped’ association between fiscal deficit and government expenditure. This suggests that an increase in fiscal deficit is associated with a rise in public expenditure till fiscal deficit attains a peak, and then a decline in public expenditure over and above the peak-point. Furthermore, the Toda-Yamamoto causality test results indicate a two-way causality from public expenditure to fiscal deficit (and oil price); a one-way causality running from outflow of money (and outward flow of FDI) to public expenditure; and a unidirectional causality from public expenditure to tax burden. The study recommends actions aimed at diversifying the UAE’s public revenue, strict monitor of tax collection and blockage of tax leakages, reduction of fiscal deficit, elimination of unofficial remittance flows, promotions of investor-friendly trade policies, and the stabilisation of the interest.

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