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Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia

Susan Olivia and John Gibson

Working Papers in Economics from University of Waikato

Abstract: The proper design of price interventions in energy markets requires consideration of equity and efficiency effects. In this paper, budget survey data from 29,000 Indonesian households are used to estimate a demand system for five energy sources, which is identified by the spatial variation in unit values (expenditures divided by quantities). We correct for the various quality and measurement error biases that result when unit values are used as proxies for market prices. The price elasticities are combined with tax and subsidy rates to calculate the marginal social cost of price changes for each item. The results suggest that even with high levels of inequality aversion there is a case for reducing the large subsidies on kerosene in Indonesia, supporting the reforms that have been announced recently.

Keywords: demand elasticities; energy; subsidies; unit values (search for similar items in EconPapers)
JEL-codes: D12 Q31 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2006-08-01
New Economics Papers: this item is included in nep-ene and nep-sea
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https://repec.its.waikato.ac.nz/wai/econwp/0606.pdf (application/pdf)

Related works:
Journal Article: Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia (2008) Downloads
Working Paper: Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:06/06

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