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Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia

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Author Info
Susan Olivia (University of California, Davis)
John Gibson () (University of Waikato)

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Abstract

The 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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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/0606.pdf
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Publisher Info
Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 06/06.

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Length: 28 pages
Date of creation: 01 Aug 2006
Date of revision:
Handle: RePEc:wai:econwp:06/06

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Related research
Keywords: demand elasticities; energy; subsidies; unit values;

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Find related papers by JEL classification:
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

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References listed on IDEAS
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.:
  1. Deaton, A., 1990. "Price Elasticities From Surveys Data: Extensions And Indonesian Results," Papers 69, World Bank - Living Standards Measurement.
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  2. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-30, June. [Downloadable!] (restricted)
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  3. John Creedy, 1996. "Measuring Income Inequality," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(2), pages 236-246. [Downloadable!] (restricted)
  4. Kunal Sen & Liesbet Steer, 2005. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 41(3), pages 279-304, December. [Downloadable!] (restricted)
  5. Nicita, Alessandro, 2004. "Efficiency and equity of a marginal tax reform - income, quality, and price elasticities for Mexico," Policy Research Working Paper Series 3266, The World Bank. [Downloadable!]
  6. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December. [Downloadable!] (restricted)
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