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Easing the traffic: The effects of Indonesia's fuel subsidy reforms on toll-road travel

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  • Paul J Burke
  • Tsendsuren Batsuuri
  • Muhammad Halley Yudhistira

Abstract

Indonesia has serious traffic jams. This study uses data from 19 Indonesian toll roads over 2008-2015 to calculate the effects of Indonesia's historic recent fuel subsidy reforms on motor vehicle travel. The timing of the reforms was determined by budgetary and political factors, providing a suitable setting for estimating a causal effect. We control for a broad set of other factors potentially influencing traffic flows. Estimates using monthly data suggest an immediate fuel price elasticity of motor vehicle flows on the roads in our study of -0.1, increasing to -0.2 when responses over a year are considered. We estimate that Indonesia's fuel subsidy reforms of 2013 and 2014 had reduced traffic pressure on these roads in the second half of 2015 by around 10% relative to the counterfactual without reform. A move to an adequate fuel excise system could contribute to more free-flowing traffic, while generating revenue for infrastructure and other investment.

Suggested Citation

  • Paul J Burke & Tsendsuren Batsuuri & Muhammad Halley Yudhistira, 2017. "Easing the traffic: The effects of Indonesia's fuel subsidy reforms on toll-road travel," Departmental Working Papers 2017-10, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2017-10
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    File URL: https://acde.crawford.anu.edu.au/sites/default/files/publication/acde_crawford_anu_edu_au/2017-08/2017-10_burke_ea_wp_0.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Burke, Paul J. & Kurniawati, Sandra, 2018. "Electricity subsidy reform in Indonesia: Demand-side effects on electricity use," Energy Policy, Elsevier, vol. 116(C), pages 410-421.
    2. Willem THORBECKE, 2019. "The Weak Rupiah: Catching the tailwinds and avoiding the shoals," Discussion papers 19006, Research Institute of Economy, Trade and Industry (RIETI).
    3. repec:eee:enepol:v:128:y:2019:i:c:p:628-638 is not listed on IDEAS

    More about this item

    Keywords

    fuel subsidy; gasoline; price; elasticity; transport; Indonesia;

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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