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The Economy-wide Impact of Fuel Oil, Gas and Electricity Pricing and Subsidy Policies as well as Their Consumption Improvement Efficiency in Indonesia

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Author Info

  • Djoni Hartono

    ()
    (Department of Economics, University of Indonesia)

  • Budy P. Resosudarmo

    ()
    (Australian National University)

Abstract

In Indonesia, the government determines the domestic prices of energy; namely fuel oil, such as gasoline, automotive diesel oil (ADO) and kerosene, gas and electricity. In response to the weakening of rupiah during the 1997/1998 economic crisis and the increasing of the world price of crude oil, the government tends to increase the energy subsidy on domestic prices of fuel oil, gas and electricity, rather than letting these domestic prices follows the world prices of fuel oil, gas and electricity. Currently domestic prices of fuel oil, such as gasoline, automotive diesel oil, kerosene as well as gas and electricity are significantly lower than the world prices of those commodities. Meanwhile government subsidy for fuel oil, gas and electricity has reached approximately 30 per cent of total government expenditure. There have been suggestions that the government should eliminate this subsidy letting the prices of fuel oil, gas and electricity equal to the world prices, since, among others, energy subsidy has foregone government’s opportunities to spend more on development expenditures that would improve the country’s growth rate. On the other hand various groups keep pressing the government to keep the prices of fuel oil, gas and electricity; i.e. do not reduce the energy subsidy, since the poor could not afford higher prices of fuel oil, gas and electricity.

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File URL: http://lp3e.fe.unpad.ac.id/wopeds/200611.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200611.

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Length: 28 pages
Date of creation: Dec 2006
Date of revision: Dec 2006
Handle: RePEc:unp:wpaper:200611

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Keywords: fuel subsidy; CGE; Indonesia;

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References

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  1. Budy P. Resosudarmo, 2002. "Indonesia's Clean Air Program," Economics and Environment Network Working Papers 0209, Australian National University, Economics and Environment Network.
  2. Robinson, Sherman, 1991. "Macroeconomics, financial variables, and computable general equilibrium models," World Development, Elsevier, vol. 19(11), pages 1509-1525, November.
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  4. Pacudan, Romeo & de Guzman, Elaine, 2002. "Impact of energy efficiency policy to productive efficiency of electricity distribution industry in the Philippines," Energy Economics, Elsevier, vol. 24(1), pages 41-54, January.
  5. Hill,Hal, 2000. "The Indonesian Economy," Cambridge Books, Cambridge University Press, number 9780521663670, October.
  6. Defourny, Jacques & Thorbecke, Erik, 1984. "Structural Path Analysis and Multiplier Decomposition within a Social Accounting Matrix Framework," Economic Journal, Royal Economic Society, vol. 94(373), pages 111-36, March.
  7. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-51, September.
  8. Khanna, Madhu & Zilberman, David, 2001. "Adoption of energy efficient technologies and carbon abatement: the electricity generating sector in India," Energy Economics, Elsevier, vol. 23(6), pages 637-658, November.
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Cited by:
  1. Agus Budiyono & Ryuta Ray Kato, 2011. "Should Indonesia Suffer from More Reduction of the Subsidy to the Petroleum Sector?," Working Papers EMS_2011_25, Research Institute, International University of Japan.
  2. Oktaviani, Rina & Amaliah, Syarifah & Ringler, Claudia & Rosegrant, Mark W. & Sulser, Timothy B., 2011. "The impact of global climate change on the Indonesian economy:," IFPRI discussion papers 1148, International Food Policy Research Institute (IFPRI).

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