Loo Sze Ying · Mukaramah Harun ·Jurnal Ekonomi Malaysia ·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 frms 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 benefted the target population -- the mediumand low-income segments in the urban and rural areas.