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Reducing Petroleum Subsidy in Indonesia: An Interregional General Equilibrium Analysis

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Regional Growth and Sustainable Development in Asia

Part of the book series: New Frontiers in Regional Science: Asian Perspectives ((NFRSASIPER,volume 7))

Abstract

This chapter discusses the political economy of petroleum subsidy reform in Indonesia. It starts with a general review on the energy subsidy debate, followed by historical summary of subsidy regimes in Indonesia under different administrations. Using an inter-regional general equilibrium model we simulate two scenarios of petroleum subsidy reform: with and without revenue recycling through indirect tax cut. The results are evaluated at national and regional levels. We show that petroleum subsidy reform through removing the subsidy and recycling the revenue to the economy benefit the overall economy. However, the impact will vary across regions and across industries. Furthermore, we argue that public support for such reform will depend on the sectoral distribution of the resulting economic outputs.

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Notes

  1. 1.

    Readers interested in more technical discussion about the theoretical structure of this model can refer to Horridge et al. (2003).

Reference

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Author information

Authors and Affiliations

  1. Department of Economics, Padjadjaran University, Bandung, Indonesia

    Arief A. Yusuf

  2. Arndt-Corden Department of Economics, Australian National University, Canberra, ACT, Australia

    Arianto A. Patunru & Budy P. Resosudarmo

Authors
  1. Arief A. Yusuf
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  2. Arianto A. Patunru
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  3. Budy P. Resosudarmo
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Corresponding author

Correspondence to Arianto A. Patunru .

Editor information

Editors and Affiliations

  1. Department of Economics, Rochester Institute of Technology, Rochester, New York, USA

    Amitrajeet A. Batabyal

  2. Department of Spatial Economics, Tinbergen Institute, Amsterdam, The Netherlands

    Peter Nijkamp

Appendix: Sectors in the IndoTERM Simulations

Appendix: Sectors in the IndoTERM Simulations

  1. 1.

    Food crops

  2. 2.

    Estate crops

  3. 3.

    Animals

  4. 4.

    Forestry

  5. 5.

    Fishery

  6. 6.

    Finance

  7. 7.

    Coal

  8. 8.

    Crude Oil

  9. 9.

    Natural gas

  10. 10.

    Other mining

  11. 11.

    Food products

  12. 12.

    Textiles

  13. 13.

    Other manufacturing

  14. 14.

    Wood products

  15. 15.

    Pulp and paper

  16. 16.

    Basic chemicals

  17. 17.

    Chemicals

  18. 18.

    Petroleum refinery

  19. 19.

    LNG

  20. 20.

    Rubbers and plastic

  21. 21.

    Cement

  22. 22.

    Metal products

  23. 23.

    Machinery

  24. 24.

    Transport equipment

  25. 25.

    Electricity and gas

  26. 26.

    Water

  27. 27.

    Construction

  28. 28.

    Trade

  29. 29.

    Restaurant and hotels

  30. 30.

    Rail transportation

  31. 31.

    Road transportation

  32. 32.

    Water transportation

  33. 33.

    Air transportation

  34. 34.

    Transportation services

  35. 35.

    Communication

  36. 36.

    Real estate

  37. 37.

    Government services

  38. 38.

    Other services

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Yusuf, A.A., Patunru, A.A., Resosudarmo, B.P. (2017). Reducing Petroleum Subsidy in Indonesia: An Interregional General Equilibrium Analysis. In: Batabyal, A., Nijkamp, P. (eds) Regional Growth and Sustainable Development in Asia. New Frontiers in Regional Science: Asian Perspectives, vol 7. Springer, Cham. https://doi.org/10.1007/978-3-319-27589-5_5

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