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Searching for Equitable Energy Price Reform for Indonesia

Author

Listed:
  • Yusuf, Arief Anshory
  • Resosudarmo, Budy P.

Abstract

Economic structure, households energy consumption pattern, and household's pattern of factor income in developing countries may typically be different with those of the developed countries, hence the distributional impact of energy price reforms could be. This may be portrayed using a Computable General Equilibrium (CGE) model with disaggregated households that allows for rich and accurate distributional story. Using this method, counter-factual scenarios analysis of recent energy price reform in Indonesia is carried out. The result suggests that vehicle fuels subsidy is regressive but increasing the price of domestic fuel (such as kerosene) tends to increase inequality, unless accompanied by a proper and effective compensation scheme. Distributional impact does depend on compensation scheme, its form and its effectiveness. Cash transfers to the poor with moderate ineffectiveness, for example, could not even prevent the increase in poverty nation-wide. Giving more cash to urban poor than to rural poor might have been better than a simple uniform cash transfers, due to urban poor's dependence on kerosene. The result also suggests that non-cash compensation, by subsidizing the poor's education and health spending may not be effective to mitigate the reform despite its desirability as longer-term poverty alleviation programs.

Suggested Citation

  • Yusuf, Arief Anshory & Resosudarmo, Budy P., 2007. "Searching for Equitable Energy Price Reform for Indonesia," MPRA Paper 1946, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1946
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    File URL: https://mpra.ub.uni-muenchen.de/1946/1/MPRA_paper_1946.pdf
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    File URL: https://mpra.ub.uni-muenchen.de/2350/1/MPRA_paper_2350.pdf
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    References listed on IDEAS

    as
    1. Peter Warr, 2006. "The Gregory Thesis Visits the Tropics," The Economic Record, The Economic Society of Australia, vol. 82(257), pages 177-194, June.
    2. World Bank, 2006. "Making the New Indonesia Work for the Poor," World Bank Other Operational Studies 8172, The World Bank.
    3. Arief Anshory Yusuf, 2006. "Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework," Working Papers in Economics and Development Studies (WoPEDS) 200604, Department of Economics, Padjadjaran University, revised Nov 2006.
    4. Luc Savard, 2003. "Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach," Cahiers de recherche 0343, CIRPEE.
    5. Iwan J. Azis, 2000. "Simulating economy-wide models to capture the transition from financial crisis to social crisis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 34(2), pages 251-278.
    6. François Bourguignon & Anne-Sophie Robilliard & Sherman Robinson, 2003. "Representative versus real households in the macro-economic modeling of inequality," Working Papers DT/2003/10, DIAL (Développement, Institutions et Mondialisation).
    7. Ferreira Filho, Joaquim Bento de Souza & Horridge, Mark Jonathan, 2006. "Economic Integration, Poverty and Regional Inequality in Brazil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 60(4), February.
    8. Deaton, A. & Case, A., 1988. "Analysis Of Household Expenditures," Papers 28, World Bank - Living Standards Measurement.
    9. Caesar B. Cororaton & John Cockburn, 2005. "Trade Reform and Poverty in the Philippines: a Computable General Equilibrium Microsimulation Analysis," Cahiers de recherche 0513, CIRPEE.
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    11. 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.
    12. 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.
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    Cited by:

    1. Sofyan SYAHNUR & Klaus FROHBERG, "undated". "The Impact of Oil Price Behavior on the Poor in Nanggroe Aceh Darussalam Province, Indonesia," EcoMod2008 23800139, EcoMod.

    More about this item

    Keywords

    Energy price reform; Distribution; CGE; Indonesia;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D30 - Microeconomics - - Distribution - - - General

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