Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia
AbstractThe proper design of price interventions in energy markets requires consideration of equity and efficiency effects. In this paper, budget survey data from 29,000 Indonesian households are used to estimate a demand system for five energy sources, which is identified by the spatial variation in unit values (expenditures divided by quantities). We correct for the various quality and measurement error biases that result when unit values are used as proxies for market prices. The price elasticities are combined with tax and subsidy rates to calculate the marginal social cost of price changes for each item. The results suggest that even with high levels of inequality aversion there is a case for reducing the large subsidies on kerosene in Indonesia, supporting the reforms that have been announced recently.
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Bibliographic InfoPaper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 06/06.
Length: 28 pages
Date of creation: 01 Aug 2006
Date of revision:
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demand elasticities; energy; subsidies; unit values;
Other versions of this item:
- Susan Olivia & John Gibson, 2008. "Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 21-40.
- Olivia, Susan & Gibson, John, 2006. "Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25745, International Association of Agricultural Economists.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-03 (All new papers)
- NEP-ENE-2006-09-03 (Energy Economics)
- NEP-SEA-2006-09-03 (South East Asia)
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