Responses of firms and households to government expenditure in Malaysia: evidence for the fuel subsidy withdrawal

Responses of firms and households to government expenditure in Malaysia: evidence for the fuel subsidy withdrawal. Jurnal Ekonomi Malaysia, 53 (2). pp. 29-39. ISSN 2716–6058 (2019)


This paper estimated the reactions of frms and households to the change of government expenditure from fuel subsidies
to two alternative fscal regimes, including the expansion of government expenditure on agricultural investment and
direct cash transfers. Outcomes brought by the government expenditure changes to outputs of production for frms,
together with the household consumption expenditure, were taken into account. This study was carried out by using a
Löfgren-based computable general equilibrium (CGE) model. The fndings showed that complete fuel withdrawal was
found to have adverse impacts on frms and households. The withdrawal of subsidy brought a lackluster performance
in domestic production. Firms that needed large amounts of fuel products to produce outputs were greatly affected.
Besides, households of all segments faced large consumption loss. Nevertheless, the resulting adverse impacts on firms
and households could be minimized with the implementation of mitigation measures along with the subsidy reform. The
additional fund transfer to the agricultural sector had the merits of improving domestic production and minimizing the
consumption loss of the population. In contrast, the direct cash transfer benefited the target population -- the medium and low-income segments in the urban and rural areas.

Item Type: Article
Keywords: Fuel subsidy withdrawal (removal), Computable general equilibrium (CGE) model, Government expenditures on agricultural investment, Government expenditures on direct cash transfers, Expenditures
Taxonomy: By Subject > Business & Management > Economics
By Subject > Business & Management > Finance
Local Content Hub: Subjects > Business & Management
Depositing User: Eza Eliana Abdul Wahid
Date Deposited: 06 Oct 2021 23:39
Last Modified: 12 Oct 2021 09:30
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