Effect of Gas Subsidies In Indonesia

Mark Horridge and Elizabeth Roos

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

Abstract: Countries that export energy or minerals often feel that they would be richer if the commodities could be processed onshore rather than overseas. In this way, it is thought, 'value-adding' could occur locally, raising local GDP. Such countries may subsidize local use of the exportable commodity. The strategy, which involves 'picking winners', is not obviously sensible. Why not sell at the higher, export, price? If a subsidy to local industry were needed, why not offer an explicit subsidy, rather than a hidden subsidy in the form of cheaper inputs. A more orthodox economic approach would stress that prosperity is based on: * human capital (a skilled and well-educated workforce); * good infrastructure (eg, good roads and reliable electricity); * good governance (not too much red tape or corruption); * and, with luck, valuable natural resources! The focus of this study is Indonesia's effort to use more natural gas locally rather exporting it. To further this aim, domestic users are offered natural gas at a price below the export (world) price. There is in effect a subsidy to local use of natural gas. Using INDORANI, a computable general equilibrium (CGE) model of Indonesia, we simulate the effect of removing this subsidy.

Keywords: Regional modelling; gas subsidies; Indonesia (search for similar items in EconPapers)
JEL-codes: C68 H21 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-ene, nep-isf and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.copsmodels.com/ftp/workpapr/g-317.pdf Initial version, 2021-08 (application/pdf)
https://www.copsmodels.com/elecpapr/g-317.htm Local abstract: may link to additional material. (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cop:wpaper:g-317

Access Statistics for this paper

More papers in Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre Contact information at EDIRC.
Bibliographic data for series maintained by Mark Horridge ().