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Real And Distributive Effects Of Petroleum Price Liberalization: The Case Of Indonesia

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  • Benedict CLEMENTS
  • Hong‐Sang JUNG
  • Sanjeev GUPTA

Abstract

The effect of higher petroleum prices on the aggregate price level, real growth, and income distribution is appraised within a multisector computable general equilibrium (CGE) model. A reduction in the government subsidy raises petroleum prices and production costs throughout the economy. Consumer demand, production, and income decline as output prices increase and consumer purchasing power decreases. The model is applied to and calibrated for Indonesia. The simulated results predict a slight increase in the price level and a slight decrease in output. An important result is that urban household groups will be the most significantly affected by the subsidy reduction.

Suggested Citation

  • Benedict CLEMENTS & Hong‐Sang JUNG & Sanjeev GUPTA, 2007. "Real And Distributive Effects Of Petroleum Price Liberalization: The Case Of Indonesia," The Developing Economies, Institute of Developing Economies, vol. 45(2), pages 220-237, June.
    • Handle: RePEc:bla:deveco:v:45:y:2007:i:2:p:220-237
    DOI: 10.1111/j.1746-1049.2007.00040.x
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    References listed on IDEAS

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    4. Ravallion, Martin & Huppi, Monika, 1991. "Measuring Changes in Poverty: A Methodological Case Study of Indonesia during an Adjustment Period," The World Bank Economic Review, World Bank, vol. 5(1), pages 57-82, January.
    5. Mr. Ehtisham Ahmad & Mr. Luc E. Leruth, 2000. "Indonesia: Implementing National Policies in a Decentralized Context: Special Purpose Programs to Protect the Poor," IMF Working Papers 2000/102, International Monetary Fund.
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