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Real And Distributive Effects Of Petroleum Price Liberalization: The Case Of Indonesia

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  • Benedict CLEMENTS
  • Hong‐Sang JUNG
  • Sanjeev GUPTA

Abstract

The effect of higher petroleum prices on the aggregate price level, real growth, and income distribution is appraised within a multisector computable general equilibrium (CGE) model. A reduction in the government subsidy raises petroleum prices and production costs throughout the economy. Consumer demand, production, and income decline as output prices increase and consumer purchasing power decreases. The model is applied to and calibrated for Indonesia. The simulated results predict a slight increase in the price level and a slight decrease in output. An important result is that urban household groups will be the most significantly affected by the subsidy reduction.

Suggested Citation

  • Benedict CLEMENTS & Hong‐Sang JUNG & Sanjeev GUPTA, 2007. "Real And Distributive Effects Of Petroleum Price Liberalization: The Case Of Indonesia," The Developing Economies, Institute of Developing Economies, vol. 45(2), pages 220-237, June.
  • Handle: RePEc:bla:deveco:v:45:y:2007:i:2:p:220-237
    DOI: 10.1111/j.1746-1049.2007.00040.x
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    File URL: https://doi.org/10.1111/j.1746-1049.2007.00040.x
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    References listed on IDEAS

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    1. World Bank, 2000. "Indonesia : Oil and Gas Sector Study," World Bank Other Operational Studies 15255, The World Bank.
    2. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April.
    3. Chris Manning, 2000. "Labour Market Adjustment to Indonesia's Economic Crisis: Context, Trends and Implications," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 105-136.
    4. 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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