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A CGE Analysis of the Economic Impact of Output-Specific Carbon Tax on the Malaysian Economy


  • Jaafar, Abdul Hamid
  • Al-Amin, Abul Quasem
  • Siwar, Chamhuri


Environmental pollution is an emerging issue in many developing countries and its mitigation is increasingly being integrated into national development policies. One approach to mitigate the problem is by implement pollution control policies in the form of pollution tax or clean technology incentives. Empirical studies for developed countries reveal that imposition of an carbon tax would decrease CO2 emissions significantly and do not dramatically reduce economic growth. However, the same result may not apply for small-open developing countries such as Malaysia. The objective of this study is to quantify the impact of pollution tax on the Malaysian economy under the backdrop of trade liberalization. To examine the economic impact and effectiveness of carbon tax, a single-country, static Computable General Equilibrium model for Malaysia is constructed. The model is extended to incorporate output-specific carbon tax elements. Three simulations were carried out using a Malaysian 2000 Social Accounting Matrix. The first simulation examines the impact of halving the baseline tariff and export duty while the second solely focused on the impact of output-specific carbon tax. The third simulation combines both former scenarios. The model results indicate that the Malaysian economy is not sensitive to further liberalization. The reason could be attributed to the fact that Malaysian export duty is already low. Additionally, simulation results also indicate that while imposition of carbon tax reduces carbon emission, it also results in lower GDP and trade.

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  • Jaafar, Abdul Hamid & Al-Amin, Abul Quasem & Siwar, Chamhuri, 2008. "A CGE Analysis of the Economic Impact of Output-Specific Carbon Tax on the Malaysian Economy," MPRA Paper 10210, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:10210

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    References listed on IDEAS

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    Cited by:

    1. Ditya Agung Nurdianto, 2016. "Economic Impacts of a Carbon Tax in an Integrated ASEAN," EEPSEA Special and Technical Paper tp201604t5, Economy and Environment Program for Southeast Asia (EEPSEA), revised Apr 2016.
    2. Masoud Yahoo & Jamal Othman, 2017. "Carbon and energy taxation for CO2 mitigation: a CGE model of the Malaysia," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 19(1), pages 239-262, February.
    3. Cabalu, Helen & Koshy, Paul & Corong, Erwin & Rodriguez, U-Primo E. & Endriga, Benjamin A., 2015. "Modelling the impact of energy policies on the Philippine economy: Carbon tax, energy efficiency, and changes in the energy mix," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 222-237.

    More about this item


    Trade; Air Emission; Environmental General Equilibrium; Malaysian Economy;

    JEL classification:

    • F00 - International Economics - - General - - - General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F1 - International Economics - - Trade

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