Electricity subsidy reform in Indonesia: Demand-side effects on electricity use

Paul Burke () and Sandra Kurniawati

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: Indonesia’s budget has for years been burdened by large subsidies for electricity consumption. A series of recent reforms has delivered a substantial reduction in these subsidies. In this paper we estimate demand-side effects of these reforms on electricity use. Our analysis utilizes a three-dimensional dataset covering six consumer groups, 16 regions, and 1992–2015. We control for various fixed effects, and use an instrumental variable approach. Our estimates suggest that subsidy reductions since 2013 had induced savings in annual electricity use of around 7% relative to the no-reform counterfactual as of 2015. The phase-out of remaining subsidies has the potential to generate further improvements in the efficiency of electricity use, while freeing up resources for other priorities such as infrastructure spending.

Keywords: electricity subsidy; electricity demand; price elasticity; Indonesia; panel data (search for similar items in EconPapers)
JEL-codes: L94 Q41 Q48 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2018
New Economics Papers: this item is included in nep-ene and nep-sea
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Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:pas:papers:2018-01

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