Impact of a Lower Oil Subsidy on Indonesian Macroeconomic Performance, Agricultural Sector and Poverty Incidences: a Recursive Dynamic Computable General Equilibrium Analysis
AbstractBudget deficit, exchange rate fluctuation and high fuel world price provides a pressure on budget capacity to stimulate the Indonesian economy. The government has designed several fiscal policies, including reducing the fuel subsidy. The study objective is to analyse the impact of reducing fuel subsidy on macroeconomic variables, agricultural sector, and income distribution. The modification on the basic model, which is a recursive-dynamic CGE model, is made in this study. The data used in the model is of the Indonesian I-O Table 2000, The Indonesian Social Accounting Matrix 2000, National Household Survey data and parameter from some other sources. The results show that the reduction in fuel price subsidy tends to increase prices of industrial outputs that highly depend on fuel, such as transportation and fishery sectors. In contrast, the change in fuel price does not influence the price of paddy. Wage of skilled labor, land rent, and capital rent decline steadily in response to the change in fuel price. Households will lose their income following the reduction in fuel subsidy, which then decreases the welfare of households. Incomes are not evenly distributed within the society (household groups). An increased fuel price at consumer level declines the Indonesian real GDP. The government should give the compensation of reducing the fuel subsidy directly to the poor people. The compensation can also be given directly to the poor people through the development of infrastructure, which may solve some supply side bottlenecks in the economy.
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Bibliographic InfoPaper provided by PEP-MPIA in its series Working Papers MPIA with number 2007-28.
Date of creation: 2007
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Fuel subsidy; income distribution; recursive dynamic CGE;
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
This paper has been announced in the following NEP Reports:
- NEP-AGR-2008-02-16 (Agricultural Economics)
- NEP-ALL-2008-02-16 (All new papers)
- NEP-CMP-2008-02-16 (Computational Economics)
- NEP-DGE-2008-02-16 (Dynamic General Equilibrium)
- NEP-ENE-2008-02-16 (Energy Economics)
- NEP-SEA-2008-02-16 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Mathew Adagunodo, 2013. "Petroleum Products Pricing Reform in Nigeria: Welfare Analysis from Household Budget Survey," International Journal of Energy Economics and Policy, Econjournals, Econjournals, vol. 3(4), pages 459 - 472.
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