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      Household energy demand and the equity and efficiency aspects of subsidy reform in Indonesia

      Olivia, Susan; Gibson, John
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      Economics_wp_0606.pdf
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      Olivia, S. & Gibson, J. (2006). Household energy demand and the equity and efficiency aspects of subsidy reform in Indonesia. (Department of Economics Working Paper Series, Number 6/06). Hamilton, New Zealand: University of Waikato.
      Permanent Research Commons link: https://hdl.handle.net/10289/1635
      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.
      Date
      2006-08
      Type
      Working Paper
      Series
      Department of Economics Working Paper Series
      Report No.
      6/06
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      • Management Papers [1125]
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