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

By Benedict J. Clements, Sanjeev Gupta, Hong-Sang Jung

October 1, 2003

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Benedict J. Clements, Sanjeev Gupta, and Hong-Sang Jung. Real and Distributive Effects of Petroleum Price Liberalization: The Case of Indonesia, (USA: International Monetary Fund, 2003) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Commodities, Consumption, Income, Inflation, National accounts, Oil, Oil prices, Prices

Keywords: CGE, Consumption, Demand, Determination mechanism, Income, Income elasticity, Indonesia, Inflation, Kerosene price, Oil, Oil price increase, Oil prices, Output price, Petroleum prices, Poverty, Price, Public expenditure, Subsidies, Utility price, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/204
Stock No:

WPIEA2042003
ISBN:

9781451874525
ISSN:

1018-5941

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