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

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Real and Distributive Effects of Petroleum Price Liberalization : The Case of Indonesia
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Journal Issue
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Volume/Issue:
2003/204
Series:
IMF Working Papers
Author(s):
Benedict Clements, Sanjeev Gupta, and Hong-Sang Jung
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
October 2003
DOI:
http://dx.doi.org/10.5089/9781451874525.001
ISBN:
9781451874525
ISSN:
1018-5941
Page:
19
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.
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