Simulation of price controls for different grade of gasoline: The case of Indonesia

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Akimaya, MuhammadColorado School of Mines (författare)

Simulation of price controls for different grade of gasoline : The case of Indonesia

Artikel/kapitelEngelska2017

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Elsevier,2017
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LIBRIS-ID:oai:DiVA.org:ltu-66470
https://urn.kb.se/resolve?urn=urn:nbn:se:ltu:diva-66470URI
https://doi.org/10.1016/j.eneco.2017.10.012DOI

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Språk:engelska
Sammanfattning på:engelska

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Validerad;2017;Nivå 2;2017-11-08 (andbra)
A gasoline subsidy is one of the most prevalent strategies for distributing welfare to the people in oil-producing countries. However well-intentioned, the policy will distort the gasoline market with the resulting inefficiencies. Furthermore, the gasoline subsidy takes a great amount of government's budget. Arguably, these funds could be spent elsewhere with a greater impact on economic growth. These governments are aware of the cost of such a policy, yet face difficulties in removing the policy because of strong resistance from the public. This paper looks at the unique case of Indonesia that only provides a subsidy for regular gasoline and in turn proposes an alternative policy that introduces a subsidy for premium gasoline at a lower rate to reduce the overall gasoline subsidy cost. There has yet to be any research that simulates price controls for gasoline with different grades. The aggregate demand for gasoline in Indonesia is replicated using a translog cost calibration approach. Simulations based on the calibrated demand are then performed and the results confirm the existence of potential savings that are largely determined by the cross-price elasticities between regular and premium gasoline. The benchmark scenario, based on a recent study of substitutability between gasoline by grades, results in an 11.5% reduction in subsidy cost of around 950 million USD with a subsidy rate of Rp 2254/liter. Furthermore, the optimal rate of subsidy for premium gasoline results in a reduction of inefficiency as consumers' welfare increase by 6.8 trillion rupiahs (or 560 million USD).

Ämnesord och genrebeteckningar

SAMHÄLLSVETENSKAP Ekonomi och näringsliv Nationalekonomi hsv//swe
SOCIAL SCIENCES Economics and Business Economics hsv//eng
Economics
Nationalekonomi

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Dahl, CarolLuleå tekniska universitet,Samhällsvetenskap,Mineral and Energy Economics Program and Payne Institute of Earth Resources, Division of Economics and Business, Colorado School of Mines, Golden, CO(Swepub:ltu)cardah (författare)
Colorado School of MinesSamhällsvetenskap (creator_code:org_t)

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Ingår i:Energy Economics: Elsevier68, s. 373-3820140-98831873-6181

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Av författaren/redakt...: Akimaya, Muhamma ...; Dahl, Carol

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SAMHÄLLSVETENSKAP: SAMHÄLLSVETENSKA ...; och Ekonomi och näri ...; och Nationalekonomi

Artiklar i publikationen: Energy Economics

Av lärosätet: Luleå tekniska universitet

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