Reducing Fuel Subsidies and the Implication on Fiscal Balance and Poverty in Indonesia: A Simulation Analysis
An increase in world oil prices has forced the government of Indonesia to run a larger budget deficit to finance energy subsidies. Between 2000 and 2011, Indonesia burnt 61 per cent of oil and gas revenues to fuel and electricity subsidies. These subsidies worsen income distribution in Indonesia since almost 72 per cent of these subsidies are enjoyed by the 30 per cent of the richest income groups. Therefore, there are strong economic arguments to reallocate fuel subsidies to infrastructures, education and health sectors that can boast economic growth. Applying a CGE-Microsimulation, this study found that removing 25 per cent of fuel subsidies increases the incidence of poverty by 0.253 per cent. If this money were fully allocated to government spending, the poverty incidence would decrease by 0.270 per cent. Moreover, the 100 per cent removal of fuel subsidies and the reallocation of 50 per cent of them to government spending, transfers and other subsidies could decrease the incidence of poverty by 0.277 per cent. However, these reallocation policies might not be effective to compensate the adverse impacts of the 100 per cent removal of fuel subsidies if economic agents try to seek gain through mark-up pricing over the increase of production costs.
|Date of creation:||May 2012|
|Date of revision:||May 2012|
|Contact details of provider:|| Phone: (021)-7272425|
Web page: http://www.feb.ui.ac.id
More information through EDIRC
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.:
- 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.
- 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 0412, CIRPEE.
- Luc Savard, 2005. "Poverty and Inequality Analysis within a CGE Framework: A Comparative Analysis of the Representative Agent and Microsimulation Approaches," Post-Print hal-00813583, HAL.
- 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.
- 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.
- Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, 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.
- Easterly, William & Fischer, Stanley, 2001. "Inflation and the Poor," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 160-178, May.
- Easterly, William & Fischer, Stanley, 2000. "Inflation and the poor," Policy Research Working Paper Series 2335, The World Bank.
- Luc Savard, 2003. "Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach," Cahiers de recherche 0343, CIRPEE.
- 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.
- Teguh Dartanto & Usman, 2011. "Volatility of World Soybean Prices, Import Tariffs and Poverty in Indonesia," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 5(2), pages 139-181, May.
- Arze del Granado, Francisco Javier & Coady, David & Gillingham, Robert, 2012. "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries," World Development, 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.
- Baker, Paul & Blundell, Richard & Micklewright, John, 1989. "Modelling Household Energy Expenditures Using Micro-data," Economic Journal, Royal Economic Society, vol. 99(397), pages 720-738, 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.
- 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.
- 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.
- 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 1-25.
- Clemens Breisinger & Wilfried Engelke & Olivier Ecker, 2012. "Leveraging Fuel Subsidy Reform for Transition in Yemen," Sustainability, MDPI, Open Access Journal, vol. 4(11), pages 1-26, October. Full references (including those not matched with items on IDEAS)