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The Economic Price of Liquid Petroleum Gas, Poverty and Subsidy Removal Compensation Scenario in Indonesia

Author

Listed:
  • Eddy Prabowo

    (School of Business, IPB University, Bogor, Indonesia,)

  • Harianto

    (School of Business, IPB University, Bogor, Indonesia,)

  • Bambang Juanda

    (Department of Economics, IPB University, Bogor, Indonesia.)

  • Dikky Indrawan

    (School of Business, IPB University, Bogor, Indonesia,)

Abstract

Indonesia is one of the countries with the largest population in the world, implicating the higher energy needs for consumption. LPG is one of the most important energies consumed by the majority of Indonesians since 2008. There is a programme for LPG in Indonesia, namely the LPG subsidy price. However, it is not implemented accurately in order to keep Indonesians, particularly those living below the poverty line able to purchase LPG. The purpose of this research is to determine the relationship between the economic price of LPG and poverty, as well as the subsidy removal compensation in Indonesia. Vector Auto Regression (VAR) first difference was applied in this research, and the findings show that statistically LPG economy prices have a unilateral relationship with a significant impact on poverty. Two subsidies removal compensation scenarios result shows that approximately subsidy of minimum IDR 52 thousand per month will keep the poor beneficiaries just above the poverty line. There is a potential government saving per year for LPG subsidies removal.

Suggested Citation

  • Eddy Prabowo & Harianto & Bambang Juanda & Dikky Indrawan, 2022. "The Economic Price of Liquid Petroleum Gas, Poverty and Subsidy Removal Compensation Scenario in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(5), pages 169-177, September.
    • Handle: RePEc:eco:journ2:2022-05-21
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    References listed on IDEAS

    as
    1. Sze Ying Loo & Mukaramah Harun, 2019. "Fuel Subsidy Abolition and Performance of the Sectors in Malaysia: A Computable General Equilibrium Approach," Malaysian Journal of Economic Studies, Faculty of Business and Economics, University of Malaya & Malaysian Economic Association, vol. 56(2), pages 303-326, December.
    2. Kojima,Masami, 2016. "Fossil fuel subsidy and pricing policies : recent developing country experience," Policy Research Working Paper Series 7531, The World Bank.
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    Cited by:

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    2. Evans, Olaniyi & Nwaogwugwu, Isaac & Vincent, Olusegun & Wale-Awe, Olawale & Mesagan, Ekundayo & Ojapinwa, Taiwo, 2023. "The socio-economics of the 2023 fuel subsidy removal in Nigeria," MPRA Paper 118360, University Library of Munich, Germany.
    3. Jing Jing Liu & Norlida Hanim Mohd Salleh & Hasimah Sapiri & Norazura Ahmad, 2025. "Causality Analysis of Cooking Oil Subsidy Reform in Malaysia: A Conceptual Framework from System Dynamic Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(2), pages 3844-3851, February.

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    More about this item

    Keywords

    economic price; liquid petroleum gas; poverty; subsidy removal; VAR;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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