Facebook LinkedIn Twitter

IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia

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.

Purchase ( $25 )

Energy Specializations: Energy Access – Sustainable Development and Distributed Energy; Petroleum – Markets and Prices for Crude Oil and Products; Natural Gas – Markets and Prices; Energy Access – Energy Poverty and Equity

JEL Codes:
Q01 - Sustainable Development
L13 - Oligopoly and Other Imperfect Markets
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

Keywords: Household energy, demand elasticities, fuels, subsidies, unit values, Indonesia

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-2

Published in Volume 29, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.