Open AccessImpacts of Fuel Subsidy Rationalization on Sectoral Output and Employment in Malaysia
Author(s) -
Noorasiah Sulaiman,
Mukaramah Harun,
Arief Anshory Yusuf
Publication year - 2022
Publication title -
asian development review
Language(s) - English
Resource type - Journals
eISSN - 1996-7241
pISSN - 0116-1105
DOI - 10.1142/s0116110522500081
Subject(s) - subsidy , computable general equilibrium , rationalization (economics) , economics , fuel efficiency , diesel fuel , business , labour economics , economic policy , natural resource economics , macroeconomics , microeconomics , market economy , waste management , engineering , aerospace engineering
Large allocations for fuel subsidies have long put the Government of Malaysia’s budget under great strain. Using a computable general equilibrium (CGE) model, this paper evaluates the impact of fuel subsidy rationalization on sectoral output and employment. Employment is classified into occupational categories and skill levels. Fuel subsidies were measured using the disaggregation of prices for petrol, diesel, and other fuel products. Findings show that removing fuel subsidies would hit economic performance through high input costs, specifically for industries closely attached to the petroleum refinery sector. The manufacturing sector has the largest reduction in output and employment. Nevertheless, high- and medium-skilled labor forces experience increased demand. To increase economic efficiency, the savings from the removal of fuel subsidies should be put toward policies such as sales tax reduction. This study provides useful information for policy makers in evaluating or updating current subsidy policies to reduce economic losses.