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Investigating the Efficiency of Government Expenditure on Energy Consumption (Fuel) Subsidy Policy in Indonesia: An Application of Stochastic Frontier Model

Author

Listed:
  • Saiful Badli

    (Faculty of Economics and Business, Universitas Syiah Kuala, 23111 Darussalam, Banda Aceh, Indonesia,)

  • Raja Masbar

    (Faculty of Economics and Business, Universitas Syiah Kuala, 23111 Darussalam, Banda Aceh, Indonesia,)

  • Nazamuddin Nazamuddin

    (Faculty of Economics and Business, Universitas Syiah Kuala, 23111 Darussalam, Banda Aceh, Indonesia,)

  • Muhammad Nasir

    (Faculty of Economics and Business, Universitas Syiah Kuala, 23111 Darussalam, Banda Aceh, Indonesia,)

  • T. Zulham

    (Faculty of Economics and Business, Universitas Syiah Kuala, 23111 Darussalam, Banda Aceh, Indonesia,)

  • Jumadil Saputra

    (Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, 21030 Kuala Nerus, Terengganu, Malaysia.)

  • Syahril Syahril

    (Faculty of Economics, Universitas Teuku Umar, Meulaboh, 23681 Aceh Barat, Indonesia,)

  • Helmi Noviar

    (Faculty of Economics, Universitas Teuku Umar, Meulaboh, 23681 Aceh Barat, Indonesia,)

Abstract

The energy consumption is projected to improve living standards and the economy of society. However, for achieving this objective, the government should spend much money in kind of subsidies especially in fuel oil. In several previous studies, they stated that the Indonesia government was experiencing a budget deficit due to their policy about fuel oil subsidy policy. Thus, the purpose of this study is to examine the efficiency of government spending regarding fuel oil subsidy policy in Indonesia. This study designed by using quantitative analysis collected from three data sources, namely Bank Indonesia, Central Bureau of Statistics, and the Ministry of Energy and Mineral Resources. The quarterly data for 21 years which consists of 1996 to 2017 analysed using the stochastic frontier model by assisting statistical software, namely Eviews 10. In this study, we examine the relationship government expenditure via fuel subsidy policy (FUELsubs) on economics growth (GDPpc). Also, the relationship between unemployment (UNEMPLY) and inflation rates (INFL). Besides, for analysing the efficiency of government expenditure on energy consumption (FUEL) subsidy policy in Indonesia, we use the estimation values of the stochastic frontier model through error components, vi and ui. The results of this study found the fuel subsidy policy does not meet the energy subsidy target for the Indonesian economy. Then, there is inefficiency in subsidies that impacts the tradeoff between unemployment and inflation.

Suggested Citation

  • Saiful Badli & Raja Masbar & Nazamuddin Nazamuddin & Muhammad Nasir & T. Zulham & Jumadil Saputra & Syahril Syahril & Helmi Noviar, 2020. "Investigating the Efficiency of Government Expenditure on Energy Consumption (Fuel) Subsidy Policy in Indonesia: An Application of Stochastic Frontier Model," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 161-165.
    • Handle: RePEc:eco:journ2:2020-04-20
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    References listed on IDEAS

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    Cited by:

    1. Gu, Jiafeng, 2023. "Energy poverty and government subsidies in China," Energy Policy, Elsevier, vol. 180(C).
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    3. Farah Roslan & Ștefan Cristian Gherghina & Jumadil Saputra & Mário Nuno Mata & Farah Diana Mohmad Zali & José Moleiro Martins, 2022. "A Panel Data Approach towards the Effectiveness of Energy Policies in Fostering the Implementation of Solar Photovoltaic Technology: Empirical Evidence for Asia-Pacific," Energies, MDPI, vol. 15(10), pages 1-22, May.

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    More about this item

    Keywords

    Energy Consumption (Fuel); Fuel Policy; Fuel Subsidy; Government expenditure; Unemployment; Economic Growth.;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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