Should Indonesia Suffer from More Reduction of the Subsidy to the Petroleum Sector?

Agus Budiyono () and Ryuta Kato
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Agus Budiyono: Ministry of Internal Affairs of Indonesia

No EMS_2011_25, Working Papers from Research Institute, International University of Japan

Abstract: We numerically examine the impact of the actually implemented reduction policy of the subsidy to the petroleum sector by using a static CGE model with the latest input-output table of Indonesia of year 2008. Our simulation results indicate that the Indonesian economy suffered from the actually implemented policy with a welfare loss of 28,417.78 billion rupiah even with the conversion policy. Furthermore, the proposed future reduction policy by the Ministry of Finance would unavoidably result in a welfare loss even when the government continues the current conversion policy. However, our simulation results also suggest that a new future conversion policy with a slightly additional subsidy to the LPG sector would eventuate in completely offsetting the negative effect of the proposed plan on the future welfare with an expanding government expenditure.

Keywords: Computable General Equilibrium (CGE) Model; Petroleum; Subsidy; Welfare; Simulation (search for similar items in EconPapers)
JEL-codes: C68 D57 D58 D60 E17 H53 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2011-12
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-sea
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