Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia
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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Volume (Year): Volume 29 (2008)
Issue (Month): Number 1 ()
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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.:
- Deaton, Angus, 1990.
"Price elasticities from survey data : Extensions and Indonesian results,"
Journal of Econometrics,
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- Kunal Sen & Liesbet Steer, 2005. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(3), pages 279-304.
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- 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.
- Pitt, Mark M., 1985. "Equity, externalities and energy subsidies The case of kerosine in Indonesia," Journal of Development Economics, Elsevier, vol. 17(3), pages 201-217, April.
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