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Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia

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Abstract

The proper design of price interventions in energy markets requires consideration of equity and efficiency effects. In this paper, budget survey data from 29,000 Indonesian households are used to estimate a demand system for five energy sources, which is identified by the spatial variation in unit values (expenditures divided by quantities). We correct for the various quality and measurement error biases that result when unit values are used as proxies for market prices. The price elasticities are combined with tax and subsidy rates to calculate the marginal social cost of price changes for each item. The results suggest that even with high levels of inequality aversion there is a case for reducing the large subsidies on kerosene in Indonesia, supporting the reforms that have been announced recently.

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  • Susan Olivia & John Gibson, 2006. "Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia," Working Papers in Economics 06/06, University of Waikato.
    • Handle: RePEc:wai:econwp:06/06
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    2. Rao, Narasimha D., 2013. "Distributional impacts of climate change mitigation in Indian electricity: The influence of governance," Energy Policy, Elsevier, vol. 61(C), pages 1344-1356.
    3. Xinyu Yang & Siqi Yu & Xinling Jiang & Zhongyao Cai & Ping Jiang, 2025. "The Impact of Different Types of Energy Transition Policies in China on Household Energy Poverty and Health Vulnerability," Energies, MDPI, vol. 18(8), pages 1-21, April.
    4. 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.

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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