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Real and Distributive Effects of Petroleum Price Liberalization; The Case of Indonesia

Author

Listed:
  • Benedict J. Clements
  • Sanjeev Gupta
  • Hong-Sang Jung

Abstract

The impact 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 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 J. Clements & Sanjeev Gupta & Hong-Sang Jung, 2003. "Real and Distributive Effects of Petroleum Price Liberalization; The Case of Indonesia," IMF Working Papers 03/204, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/204
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    References listed on IDEAS

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    1. Benedict J. Clements & Sanjeev Gupta & Emanuele Baldacci & Carlos Mulas-Granados, 2002. "Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries," IMF Working Papers 02/77, International Monetary Fund.
    2. Ravallion, Martin & Huppi, Monika, 1991. "Measuring Changes in Poverty: A Methodological Case Study of Indonesia during an Adjustment Period," World Bank Economic Review, World Bank Group, vol. 5(1), pages 57-82, January.
    3. Ehtisham Ahmad & Luc E. Leruth, 2000. "Indonesia; Implementing National Policies in a Decentralized Context: Special Purpose Programs to Protect the Poor," IMF Working Papers 00/102, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:eee:wdevel:v:99:y:2017:i:c:p:463-480 is not listed on IDEAS
    2. Nathan S. Balke, Michael Plante, and Mine Yücel, 2015. "Fuel Subsidies, the Oil Market and the World Economy," The Energy Journal, International Association for Energy Economics, vol. 0(Adelman S).
    3. Jiang, Zhujun & Lin, Boqiang, 2014. "The perverse fossil fuel subsidies in China—The scale and effects," Energy, Elsevier, vol. 70(C), pages 411-419.
    4. Kangni Kpodar & Calvin Djiofack, 2010. "The Distributional Effects of Oil Price Changes on Household Income: Evidence from Mali," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 19(2), pages 205-236, March.
    5. Jiang, Zhujun & Tan, Jijun, 2013. "How the removal of energy subsidy affects general price in China: A study based on input–output model," Energy Policy, Elsevier, vol. 63(C), pages 599-606.
    6. Acharya, Rajesh H. & Sadath, Anver C., 2017. "Implications of energy subsidy reform in India," Energy Policy, Elsevier, vol. 102(C), pages 453-462.
    7. Djoni Hartono & Tony Irawan & Ahmad Komarulzaman, 2014. "Energy Pricing Policies in Indonesia: A Computable General Equilibrium Model," EcoMod2014 7344, EcoMod.
    8. Yusuf, Arief Anshory & Resosudarmo, Budy P., 2007. "Searching for Equitable Energy Price Reform for Indonesia," MPRA Paper 1946, University Library of Munich, Germany.
    9. Kangni R Kpodar, 2006. "Distributional Effects of Oil Price Changeson Household Expenditures; Evidence From Mali," IMF Working Papers 06/91, International Monetary Fund.
    10. Kevin Fletcher, 2005. "Increasing Public Sector Revenue in the Philippines; Equity and Efficiency Considerations," IMF Working Papers 05/22, International Monetary Fund.
    11. Soile, Ismail & Mu, Xiaoyi, 2015. "Who benefit most from fuel subsidies? Evidence from Nigeria," Energy Policy, Elsevier, vol. 87(C), pages 314-324.

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