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Why Is Reducing Energy Subsidies a Prudent, Fair, and Transformative Policy for Indonesia?

Author

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  • Diop, Ndiame

    (World Bank)

Abstract

If there was one bold and timely policy to transform Indonesia, this is it. In 2012, spending on energy subsidies claimed more than one-fifth of the central government’s budget, that is, more than three times the allocation for infrastructure such as roads, water, electricity and irrigation networks, and three times the governmentwide spending on health. In addition to crowding out high-priority spending, subsidies disproportionately benefit households at the top of the income distribution and throw sand on Indonesia’s remarkable record of prudent macroeconomic management. Not to mention how subsidies create disincentives for saving energy, developing alternative energy sources, and reducing carbon dioxide emissions. Given their adverse short- and long-term economic consequences, reducing them—with the appropriate safeguards to protect the poor—is a fair, prudent, and transformative policy

Suggested Citation

  • Diop, Ndiame, 2014. "Why Is Reducing Energy Subsidies a Prudent, Fair, and Transformative Policy for Indonesia?," World Bank - Economic Premise, The World Bank, issue 140, pages 1-6, April.
    • Handle: RePEc:wbk:prmecp:ep140
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    References listed on IDEAS

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    1. Kojima, Masami, 2013. "Petroleum product pricing and complementary policies: experience of 65 developing countries since 2009," Policy Research Working Paper Series 6396, The World Bank.
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    Cited by:

    1. Gu, Jiafeng, 2023. "Energy poverty and government subsidies in China," Energy Policy, Elsevier, vol. 180(C).
    2. Olivier Durand-Lasserve & Lorenza Campagnolo & Jean Chateau & Rob Dellink, 2015. "Modelling of distributional impacts of energy subsidy reforms: an illustration with Indonesia," OECD Environment Working Papers 86, OECD Publishing.
    3. Johannes Kruger & Louise Tait & Jiska de Groot, 2016. "The political economy of energy transitions and thermal energy poverty: Comparing the residential LPG sectors in Indonesia and South Africa," WIDER Working Paper Series wp-2016-72, World Institute for Development Economic Research (UNU-WIDER).
    4. Johannes Kruger & Louise Tait & Jiska de Groot, 2016. "The political economy of energy transitions and thermal energy poverty: Comparing the residential LPG sectors in Indonesia and South Africa," WIDER Working Paper Series 072, World Institute for Development Economic Research (UNU-WIDER).
    5. Slim DALI & Rodolphe BOCQUET & Edouard PLUS & Olivier RECH, 2017. "Vulnérabilités énergétiques et conséquences macroéconomiques en Indonésie," Working Paper 1e6889ce-854e-4915-84d6-2, Agence française de développement.

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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