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Searching for Equitable Energy Pricing Reform for Indonesia

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Author Info
Arief Anshory Yusuf () (Department of Economics, Padjadjaran University)
Budy P. Resosudarmo () (Australian National University)

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Abstract

In 2005, the Indonesian government implemented a massive fuel price increase. While the benefits of the reform on efficiency grounds have been widely acknowledged, there is still debate about whether the reform was equitable.., That question is answered in this paper using a Computable General Equilibrium (CGE) model with disaggregated households that allows for a rich and accurate distributional story. Analysis of various counter-factual scenarios analysis of the reform is carried out. It suggests that the reform could have been progressive if it increased only vehicle fuel prices. However, it tends to increase inequality especially in urban area when the price of domestic fuel (kerosene) is also increased. Proper and effective compensation is important in mitigating the distributional cost or poverty impact of the reform. A uniform cash transfer to poor households that disregards poor households’ heterogeneity tends to over-compensate the rural poor but under-compensate the urban poor.

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File URL: http://www.equitablepolicy.org/wpaper/200701.pdf
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200701.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 17 pages
Date of creation: Jan 2007
Date of revision: Dec 2007
Publication status: Forthcoming in ASEAN Economic Bulletin, April, 2008
Handle: RePEc:unp:wpaper:200701

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Related research
Keywords: FUel pricing reform Distribution CGE Indonesia

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Find related papers by JEL classification:
D30 - Microeconomics - - Distribution - - - General
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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