Searching for Equitable Energy Price Reform for Indonesia

Arief Yusuf and Budy Resosudarmo

MPRA Paper from University Library of Munich, Germany

Abstract: Economic structure, households energy consumption pattern, and household's pattern of factor income in developing countries may typically be different with those of the developed countries, hence the distributional impact of energy price reforms could be. This may be portrayed using a Computable General Equilibrium (CGE) model with disaggregated households that allows for rich and accurate distributional story. Using this method, counter-factual scenarios analysis of recent energy price reform in Indonesia is carried out. The result suggests that vehicle fuels subsidy is regressive but increasing the price of domestic fuel (such as kerosene) tends to increase inequality, unless accompanied by a proper and effective compensation scheme. Distributional impact does depend on compensation scheme, its form and its effectiveness. Cash transfers to the poor with moderate ineffectiveness, for example, could not even prevent the increase in poverty nation-wide. Giving more cash to urban poor than to rural poor might have been better than a simple uniform cash transfers, due to urban poor's dependence on kerosene. The result also suggests that non-cash compensation, by subsidizing the poor's education and health spending may not be effective to mitigate the reform despite its desirability as longer-term poverty alleviation programs.

Keywords: Energy price reform; Distribution; CGE; Indonesia (search for similar items in EconPapers)
JEL-codes: D30 D58 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/2350/1/MPRA_paper_2350.pdf revised version (application/pdf)

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