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

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  • Susan Olivia
  • John Gibson

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.

Suggested Citation

  • Susan Olivia & John Gibson, 2008. "Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 21-40.
    • Handle: RePEc:aen:journl:2008v29-01-a02
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    Cited by:

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    2. Ahmadi Murjani, 2020. "Assessing the Energy Subsidy Reform in Indonesia through Different Scenarios," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 122-134.
    3. Park, Hojeong & Kwon, Hyucksoo, 2011. "Effects of consumer subsidy on household fuel switching from coal to cleaner fuels: A case study for anthracites in Korea," Energy Policy, Elsevier, vol. 39(3), pages 1687-1693, March.
    4. Arthur, Maria de Fátima S.R. & Bond, Craig A. & Willson, Bryan, 2012. "Estimation of elasticities for domestic energy demand in Mozambique," Energy Economics, Elsevier, vol. 34(2), pages 398-409.
    5. Renner, Sebastian & Lay, Jann & Schleicher, Michael, 2017. "The Effects of Energy Price Changes: Heterogeneous Welfare Impacts, Energy Poverty, and CO2 Emissions in Indonesia," GIGA Working Papers 302, GIGA German Institute of Global and Area Studies.
    6. Rao, Narasimha D., 2013. "Distributional impacts of climate change mitigation in Indian electricity: The influence of governance," Energy Policy, Elsevier, vol. 61(C), pages 1344-1356.
    7. Ngui, Dianah & Mutua, John & Osiolo, Hellen & Aligula, Eric, 2011. "Household energy demand in Kenya: An application of the linear approximate almost ideal demand system (LA-AIDS)," Energy Policy, Elsevier, vol. 39(11), pages 7084-7094.
    8. José M. Labeaga & Xavier Labandeira & Xiral López-Otero, 2018. "Energy Tax Reform and Poverty Alleviation in Mexico," Working Papers 1801, Universidade de Vigo, Departamento de Economía Aplicada.
    9. Nazish Tehseen & Sheraz Ali Khan, 2017. "Fuel Demand Elasticities for Energy and Environmental Policies: Evidence from Household Data in Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 6(3), pages 117-129, September.
    10. International Monetary Fund, 2010. "Islamic Republic of Iran: Selected Issues Paper," IMF Staff Country Reports 2010/076, International Monetary Fund.
    11. Mathew Adagunodo, 2013. "Petroleum Products Pricing Reform in Nigeria: Welfare Analysis from Household Budget Survey," International Journal of Energy Economics and Policy, Econjournals, vol. 3(4), pages 459-472.
    12. Rosas-Flores, Jorge Alberto, 2017. "Elements for the development of public policies in the residential sector of Mexico based in the Energy Reform and the Energy Transition law," Energy Policy, Elsevier, vol. 104(C), pages 253-264.

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