Real and Distributive Effects of Petroleum Price Liberalization: The Case of Indonesia

19 Pages Posted: 14 Feb 2006

See all articles by Benedict Clements

Benedict Clements

International Monetary Fund (IMF) - African Department

Hong-Sang Jung

International Monetary Fund (IMF)

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: October 2003

Abstract

The impact 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 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.

Keywords: Public expenditure, CGE, petroleum prices, subsidies, poverty, Indonesia

JEL Classification: E62, C68, H71, I32

Suggested Citation

Clements, Benedict and Jung, Hong-Sang and Gupta, Sanjeev, Real and Distributive Effects of Petroleum Price Liberalization: The Case of Indonesia (October 2003). IMF Working Paper No. 03/204, Available at SSRN: https://ssrn.com/abstract=880853

Benedict Clements (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Hong-Sang Jung

International Monetary Fund (IMF)

700 19th Street NW
Washington, DC 20431
United States

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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