Is There a Case for Fuel Subsidy Removal in Malaysia?

Nor Azam Abdul Razak (), Russayani Ismail and Roslan Abdul Hakim
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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.

Journal of Economic and Financial Studies (JEFS), 2014, vol. 2, issue 4, 1-13

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.

Keywords: Fuel subsidy; Indirect welfare effect; Malaysia; Subsidy removal. (search for similar items in EconPapers)
JEL-codes: C81 D63 (search for similar items in EconPapers)
Date: 2014
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