Abstract
This chapter discusses the political economy of petroleum subsidy reform in Indonesia. It starts with a general review on the energy subsidy debate, followed by historical summary of subsidy regimes in Indonesia under different administrations. Using an inter-regional general equilibrium model we simulate two scenarios of petroleum subsidy reform: with and without revenue recycling through indirect tax cut. The results are evaluated at national and regional levels. We show that petroleum subsidy reform through removing the subsidy and recycling the revenue to the economy benefit the overall economy. However, the impact will vary across regions and across industries. Furthermore, we argue that public support for such reform will depend on the sectoral distribution of the resulting economic outputs.
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Notes
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Readers interested in more technical discussion about the theoretical structure of this model can refer to Horridge et al. (2003).
Reference
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Appendix: Sectors in the IndoTERM Simulations
Appendix: Sectors in the IndoTERM Simulations
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1.
Food crops
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2.
Estate crops
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3.
Animals
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4.
Forestry
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5.
Fishery
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6.
Finance
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7.
Coal
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8.
Crude Oil
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9.
Natural gas
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10.
Other mining
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11.
Food products
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12.
Textiles
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13.
Other manufacturing
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14.
Wood products
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15.
Pulp and paper
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16.
Basic chemicals
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17.
Chemicals
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18.
Petroleum refinery
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19.
LNG
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20.
Rubbers and plastic
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21.
Cement
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22.
Metal products
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23.
Machinery
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24.
Transport equipment
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25.
Electricity and gas
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26.
Water
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27.
Construction
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28.
Trade
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29.
Restaurant and hotels
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30.
Rail transportation
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31.
Road transportation
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32.
Water transportation
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33.
Air transportation
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34.
Transportation services
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35.
Communication
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36.
Real estate
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37.
Government services
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38.
Other services
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Yusuf, A.A., Patunru, A.A., Resosudarmo, B.P. (2017). Reducing Petroleum Subsidy in Indonesia: An Interregional General Equilibrium Analysis. In: Batabyal, A., Nijkamp, P. (eds) Regional Growth and Sustainable Development in Asia. New Frontiers in Regional Science: Asian Perspectives, vol 7. Springer, Cham. https://doi.org/10.1007/978-3-319-27589-5_5
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