Public expenditure expansion and inter-ethnic and rural-urban income disparity

This paper explores empirically the impact of public expenditure expansion in reducing inter-ethnic and rural-urban income disparity. The impact is examined within the context of a Social Accounting Matrix (SAM) based fixed price multiplier model. Generally the results show that public expenditure expansion has improved income inequality in Malaysia. The public expenditure expansion significantly improved the distribution of income across different household groups where it reduced both the Malay-Chinese and Malay-Indian income inequality as well as reduced income disparity between rural and urban areas. However, the improvement in income inequality is much larger in the Eight Malaysia Plan than the Ninth Malaysia Plan. This could reveal that the public expenditure expansion in the Eight Malaysia Plan gave more opportunities to the Malay to increase their income. It could also indicate that there were differences in the pattern or composition of the public sector expenditure in both plans that had influenced income distribution among the household sector which result a more significant success in the Eight Malaysia Plan. This then lead to suggest further investigation on the impacts of the various components of the public expenditure on the different household groups. (C) 2012 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of the Organising Committee of ICOAE 2012