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Should Indonesia Suffer from More Reduction of the Subsidy to the Petroleum Sector?

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Abstract

We numerically examine the impact of the actually implemented reduction policy of the subsidy to the petroleum sector by using a static CGE model with the latest input-output table of Indonesia of year 2008. Our simulation results indicate that the Indonesian economy suffered from the actually implemented policy with a welfare loss of 28,417.78 billion rupiah even with the conversion policy. Furthermore, the proposed future reduction policy by the Ministry of Finance would unavoidably result in a welfare loss even when the government continues the current conversion policy. However, our simulation results also suggest that a new future conversion policy with a slightly additional subsidy to the LPG sector would eventuate in completely offsetting the negative effect of the proposed plan on the future welfare with an expanding government expenditure.

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  • Agus Budiyono & Ryuta Ray Kato, 2011. "Should Indonesia Suffer from More Reduction of the Subsidy to the Petroleum Sector?," Working Papers EMS_2011_25, Research Institute, International University of Japan.
    • Handle: RePEc:iuj:wpaper:ems_2011_25
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    File URL: https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2011_25.pdf
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    References listed on IDEAS

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    1. Toshihiro Ihori, Ryuta Ray Kato, Masumi Kawade, Shun-ichiro Bessho, 2011. "The Reform Of The Public Health Insurance And Economic Growth Of Japan," Asia Pacific Economic Papers 392, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    2. 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, June.
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    6. Ihori, Toshihiro & Kato, Ryuta Ray & Kawade, Masumi & Bessho, Shun-ichiro, 2011. "Health insurance reform and economic growth: Simulation analysis in Japan," Japan and the World Economy, Elsevier, vol. 23(4), pages 227-239.
    7. Djoni Hartono & Budy P. Resosudarmo, 2006. "The Economy-wide Impact of Fuel Oil, Gas and Electricity Pricing and Subsidy Policies as well as Their Consumption Improvement Efficiency in Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200611, Department of Economics, Padjadjaran University, revised Dec 2006.
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    More about this item

    Keywords

    Computable General Equilibrium (CGE) Model; Petroleum; Subsidy; Welfare; Simulation;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D60 - Microeconomics - - Welfare Economics - - - General
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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