Searching for Equitable Energy Pricing Reform for Indonesia

Arief Anshory Yusuf and Budy P. Resosudarmo ()

No 200701, Working Papers in Economics and Development Studies (WoPEDS) from Department of Economics, Padjadjaran University

Abstract: In 2005, the Indonesian government implemented a massive fuel price increase. While the benefits of the reform on efficiency grounds have been widely acknowledged, there is still debate about whether the reform was equitable.., That question is answered in this paper using a Computable General Equilibrium (CGE) model with disaggregated households that allows for a rich and accurate distributional story. Analysis of various counter-factual scenarios analysis of the reform is carried out. It suggests that the reform could have been progressive if it increased only vehicle fuel prices. However, it tends to increase inequality especially in urban area when the price of domestic fuel (kerosene) is also increased. Proper and effective compensation is important in mitigating the distributional cost or poverty impact of the reform. A uniform cash transfer to poor households that disregards poor households’ heterogeneity tends to over-compensate the rural poor but under-compensate the urban poor.

Keywords: FUel pricing reform; Distribution; CGE; Indonesia (search for similar items in EconPapers)
JEL-codes: D30 D50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-sea
Date: 2007-01
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Forthcoming in ASEAN Economic Bulletin, April, 2008

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http://www.equitablepolicy.org/wpaper/200701.pdf First version, 2007 (application/pdf)

Related works:
Working Paper: Searching for Equitable Energy Price Reform for Indonesia (2007)
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