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Reducing Fuel Subsidies and Financing Road Infrastructure in Indonesia: A Financial Computable General Equilibrium Model

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  • Euijune Kim
  • Yasir Niti Samudro

Abstract

This article analyses whether government policies that reallocate funding for fuel subsidies to investment in transport infrastructure improve economic growth and income distribution. We develop a financial computable general equilibrium model to simulate the fiscal policies that reduce fuel subsidies to finance road investment. The novelty of this article is a dynamic model that covers multiple sectors, households, economic actors, assets and labour types. We find that reallocating fuel subsidy funding to infrastructure investment positively affects economic growth but adversely affects equality. We also find that investing in infrastructure through bank loans results in better economic growth and income distribution than reallocating subsidy funding does. Lastly, we find that investing in transport infrastructure through tax revenue can improve welfare, economic growth and income distribution.

Suggested Citation

  • Euijune Kim & Yasir Niti Samudro, 2021. "Reducing Fuel Subsidies and Financing Road Infrastructure in Indonesia: A Financial Computable General Equilibrium Model," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 57(1), pages 111-133, January.
    • Handle: RePEc:taf:bindes:v:57:y:2021:i:1:p:111-133
    DOI: 10.1080/00074918.2019.1643824
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    Cited by:

    1. Korrakot Phomsoda & Nattapong Puttanapong & Mongkut Piantanakulchai, 2021. "Assessing Economic Impacts of Thailand’s Fiscal Reallocation between Biofuel Subsidy and Transportation Investment: Application of Recursive Dynamic General Equilibrium Model," Energies, MDPI, vol. 14(14), pages 1-32, July.

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