DOES KLCI INFLUENCE FEDERAL GOVERNMENT’S REVENUE? EVIDENCE FROM 1990 UNTIL 2019

Abstract

This empirical study is pursued with the objective to examine the effect of stock market’s performance as proxied by Kuala Lumpur Composite Index (KLCI) on Malaysia’s government revenue for the past 30 years.  In particular, the study is streamlined towards investigating the strength of relationship between these two economic variables.  Within the framework of Keynesian income theory and theory of stock market development, this paper deploys Engle-Granger cointegration (1987) test to estimate the model using yearly secondary data from 1990 till 2019. The findings lend support to the presence of significant short term relationship running from KLCI to federal government’s revenue but there is an absence of long-term relationship between them.  We also observe a strong positive correlation between KLCI and federal government’s revenue. It is very clear to us that the listed firms at Bursa Malaysia are playing important roles not only in propelling Malaysia’s economic growth but also in channeling tax revenue for government coffers.  Malaysia truly needs a good dynamic tax system that can benefit tax payer and also support business growth in the long run.