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Is There a Case for Fuel Subsidy Removal in Malaysia?

Author

Listed:
  • Nor Azam Abdul Razak

    (Senior Lecturer, School of Economics, Finance & Banking, Universiti Utara Malaysia, Malaysia.)

  • Russayani Ismail

    (Associate Professor, School of Economics, Finance & Banking, Universiti Utara Malaysia, Malaysia.)

  • Roslan Abdul Hakim

    (Professor, Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Malaysia.)

Abstract

This paper examines the indirect welfare effect of removing fuel subsidy on the Malaysian households. The analysis is based on the price-shifting model developed by Coady and Newhouse (2006) and carried out using the data from the Household Expenditure Survey 2004-2005 and the input-output table 2004-2005. The analysis yields the following key results: a) The removal of fuel subsidy is expected to have a relatively huge indirect welfare effect on the society; b) The indirect welfare effect is expected to be uneven across different broad categories of goods (of which the most affected ones are: i) Food and Non-Alcoholic Beverages, ii) Housing, Water and Electricity; and iii) Transportation); and c) The indirect welfare effect is expected to be uniform across different income-based segments of households. Overall, the findings seem to constitute a case against fuel subsidy removal unless the adverse impact on the three categories of goods is mitigated in some way.

Suggested Citation

  • Nor Azam Abdul Razak & Russayani Ismail & Roslan Abdul Hakim, 2014. "Is There a Case for Fuel Subsidy Removal in Malaysia?," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 2(4), pages 1-13, August.
    • Handle: RePEc:lrc:lareco:v:2:y:2014:i:4:p:1-13
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    Cited by:

    1. Ying, Loo Sze & Harun, Mukaramah, 2019. "Responses of Firms and Households to Government Expenditure in Malaysia: Evidence for the Fuel Subsidy Withdrawal," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 29-39.

    More about this item

    Keywords

    Fuel subsidy; Indirect welfare effect; Malaysia; Subsidy removal.;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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