IDEAS home Printed from https://ideas.repec.org/p/lvl/mpiacr/2007-28.html
   My bibliography  Save this paper

Impact of a Lower Oil Subsidy on Indonesian Macroeconomic Performance, Agricultural Sector and Poverty Incidences: a Recursive Dynamic Computable General Equilibrium Analysis

Author

Listed:
  • Rina Oktaviani
  • Dedi Budiman Hakim
  • Hermanto Siregar
  • Sahara Sahara

Abstract

Budget deficit, exchange rate fluctuation and high fuel world price provides a pressure on budget capacity to stimulate the Indonesian economy. The government has designed several fiscal policies, including reducing the fuel subsidy. The study objective is to analyse the impact of reducing fuel subsidy on macroeconomic variables, agricultural sector, and income distribution. The modification on the basic model, which is a recursive-dynamic CGE model, is made in this study. The data used in the model is of the Indonesian I-O Table 2000, The Indonesian Social Accounting Matrix 2000, National Household Survey data and parameter from some other sources. The results show that the reduction in fuel price subsidy tends to increase prices of industrial outputs that highly depend on fuel, such as transportation and fishery sectors. In contrast, the change in fuel price does not influence the price of paddy. Wage of skilled labor, land rent, and capital rent decline steadily in response to the change in fuel price. Households will lose their income following the reduction in fuel subsidy, which then decreases the welfare of households. Incomes are not evenly distributed within the society (household groups). An increased fuel price at consumer level declines the Indonesian real GDP. The government should give the compensation of reducing the fuel subsidy directly to the poor people. The compensation can also be given directly to the poor people through the development of infrastructure, which may solve some supply side bottlenecks in the economy.

Suggested Citation

  • Rina Oktaviani & Dedi Budiman Hakim & Hermanto Siregar & Sahara Sahara, 2007. "Impact of a Lower Oil Subsidy on Indonesian Macroeconomic Performance, Agricultural Sector and Poverty Incidences: a Recursive Dynamic Computable General Equilibrium Analysis," Working Papers MPIA 2007-28, PEP-MPIA.
  • Handle: RePEc:lvl:mpiacr:2007-28
    as

    Download full text from publisher

    File URL: https://portal.pep-net.org/documents/download/id/8512
    Download Restriction: no

    References listed on IDEAS

    as
    1. Nabil Annabi & Fatou Cissé & John Cockburn & Bernard Decaluwé, 2005. "Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis," Working Papers 2005-07, CEPII research center.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eco:journ2:2018-02-22 is not listed on IDEAS
    2. repec:pid:journl:v:55:y:2016:i:4:p:605-618 is not listed on IDEAS
    3. Mathew Adagunodo, 2013. "Petroleum Products Pricing Reform in Nigeria: Welfare Analysis from Household Budget Survey," International Journal of Energy Economics and Policy, Econjournals, vol. 3(4), pages 459-472.

    More about this item

    Keywords

    Fuel subsidy; income distribution; recursive dynamic CGE;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lvl:mpiacr:2007-28. 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: (Manuel Paradis). General contact details of provider: http://edirc.repec.org/data/cdvlvca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.