Impact of Fuel Subsidy Removal on the Indonesian Economy
This research aims to analyze the impacts of fuel subsidy removal on Indonesian economy. Social Accounting Matrix (SAM) is applied to simulate the impact. The simulation shows that removal of fuel subsidy affected income distribution of households, firms, and governments. The impact of reallocation of subsidy to four targeted sectors- i.e. Agriculture; Trade; Food, Beverage, and Tobacco Industry; and Education and Health- would be relatively smaller than that of fuel subsidy removal. Some policy implications can be withdrawn. First, for the reasons of long-term efficiency, competitive advantage and manageable economic, social and political instability, the Goverment of Indonesia (GoI) should have clear, long-term, sceduled and gradual program of fuel subsidy reduction, not the big-bang total removal of the fuel subsidy. Second, the GoI could consider the certain amount of subsidy which is adjusted with the increase of goverment fiscal capacity, and let the domestic fuel price fluctuated as the ICP fluctuated. Societies (both domestic consumers and producers) will learn rationally and adjust logicly with the fluctuation of domestic fuel price. Third, the GoI should not consider the sectoral approach to reallocate the fuel subsidy. The GoI should consider programs such as targeted fuel subsidy to correct the misallocation the fuel subsidy (subsidy is for the poor).
|This chapter was published in: ||This item is provided by Economic Research Institute for ASEAN and East Asia (ERIA) in its series Chapters with number
2011-rpr-17-08.||Handle:|| RePEc:era:chaptr:2011-rpr-17-08||Contact details of provider:|| Postal: |
Web page: http://www.eria.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:era:chaptr:2011-rpr-17-08. 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: (Hiroshi Okasaki)The email address of this maintainer does not seem to be valid anymore. Please ask Hiroshi Okasaki to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.