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Electricity subsidy reform in Indonesia: Demand-side effects on electricity use

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  • Paul J Burke
  • Sandra Kurniawati

Abstract

Indonesia’s budget has for years been burdened by large subsidies for electricity consumption. A series of recent reforms has delivered a substantial reduction in these subsidies. In this paper we estimate demand-side effects of these reforms on electricity use. Our analysis utilizes a three-dimensional dataset covering six consumer groups, 16 regions, and 1992–2015. We control for various fixed effects, and use an instrumental variable approach. Our estimates suggest that subsidy reductions since 2013 had induced savings in annual electricity use of around 7% relative to the no-reform counterfactual as of 2015. The phase-out of remaining subsidies has the potential to generate further improvements in the efficiency of electricity use, while freeing up resources for other priorities such as infrastructure spending.

Suggested Citation

  • Paul J Burke & Sandra Kurniawati, 2018. "Electricity subsidy reform in Indonesia: Demand-side effects on electricity use," Departmental Working Papers 2018-01, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2018-01
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    More about this item

    Keywords

    electricity subsidy; electricity demand; price elasticity; Indonesia; panel data;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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