Reducing fuel subsidies and the implication on fiscal balance and poverty in Indonesia: A simulation analysis
There is an urgent need for phasing out fuel subsidies in Indonesia due to a severe budget deficit and a worsening of income distribution. Fuel subsidies, of which almost 72% are enjoyed by the 30% of the richest income groups, have consumed on average 63.8% of the total subsidies between 1998 and 2013. This paper aims at evaluating the relationship between existing fuel subsidies and fiscal balance and at analysing the poverty impact of phasing out fuel subsidies. Applying a CGE-microsimulation, this study found that removing 25% of fuel subsidies increases the incidence of poverty by 0.259 percentage points. If this money were fully allocated to government spending, the poverty incidence would decrease by 0.27 percentage points. Moreover, the 100% removal of fuel subsidies and the reallocation of 50% of them to government spending, transfers and other subsidies could decrease the incidence of poverty by 0.277 percentage points. However, these reallocation policies might not be effective in compensating for the adverse impacts of the 100% removal of fuel subsidies if economic agents try to seek profit through mark-up pricing over the increase of production costs.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Easterly, William & Fischer, Stanley, 2000.
"Inflation and the poor,"
Policy Research Working Paper Series
2335, The World Bank.
- Jung, Hong-Sang & Thorbecke, Erik, 2003. "The impact of public education expenditure on human capital, growth, and poverty in Tanzania and Zambia: a general equilibrium approach," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 701-725, November.
- Teguh Dartanto, 2013. "The Application Of An Endogenous Poverty Line And Its Relationship With The Poverty Impact Of Economic Shocks: An Empirical Investigation," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(01), pages 1350005-1-1.
- Luc Savard, 2004.
"Poverty and Inequality Analysis within a CGE Framework: a Comparative Analysis of the Representative Agent and Micro-Simulation Approaches,"
Cahiers de recherche
- Luc Savard, 2005. "Poverty and Inequality Analysis within a CGE Framework: A Comparative Analysis of the Representative Agent and Microsimulation Approaches," Development Policy Review, Overseas Development Institute, vol. 23(3), pages 313-331, 05.
- Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
- 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.
- Clemens Breisinger & Wilfried Engelke & Olivier Ecker, 2012. "Leveraging Fuel Subsidy Reform for Transition in Yemen," Sustainability, MDPI, Open Access Journal, vol. 4(11), pages 2862-2887, October.
- Teguh, Dartanto, 2010. "Volatility of world rice prices, import tariffs and poverty in Indonesia: a CGE-microsimulation analysis," MPRA Paper 31451, University Library of Munich, Germany.
- Arze del Granado, Francisco Javier & Coady, David & Gillingham, Robert, 2012.
"The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries,"
Elsevier, vol. 40(11), pages 2234-2248.
- David Coady & Javier Arze del Granado, 2010. "The Unequal Benefits of Fuel Subsidies; A Review of Evidence for Developing Countries," IMF Working Papers 10/202, International Monetary Fund.
- Shenggen Fan & Peter Hazell & Sukhadeo Thorat, 2000. "Government Spending, Growth and Poverty in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 1038-1051.
- Luc Savard, 2003. "Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach," Cahiers de recherche 0343, CIRPEE.
- Baker, Paul & Blundell, Richard & Micklewright, John, 1989. "Modelling Household Energy Expenditures Using Micro-data," Economic Journal, Royal Economic Society, vol. 99(397), pages 720-38, September.
- Shaohua Chen & Martin Ravallion, 2004. "Welfare Impacts of China's Accession to the World Trade Organization," World Bank Economic Review, World Bank Group, vol. 18(1), pages 29-57.
- Davis, Jennifer & Kang, Alice & Vincent, Jeffrey & Whittington, Dale, 2001. "How Important is Improved Water Infrastructure to Microenterprises? Evidence from Uganda," World Development, Elsevier, vol. 29(10), pages 1753-1767, October.
- B. Decaluwé & L. Savard & E. Thorbecke, 2005. "General Equilibrium Approach for Poverty Analysis: With an Application to Cameroon," African Development Review, African Development Bank, vol. 17(2), pages 213-243.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:58:y:2013:i:c:p:117-134. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.