Ahmad, S. Ehtisham, and Luc Leruth, 2000, “Indonesia: Implementing National Policies in a Decentralized Context: Special Purpose Programs to Protect the Poor,” IMF Working Paper 00/102 (Washington: International Monetary Fund).
Bulmer-Thomas, Victor, 1982, Input-Output Analysis in Developing Countries: Sources, Methods, and Applications (New York: John Wiley and Sons).
Gupta, Sanjeev, Benedict Clements, Emanuele Baldacci, and Carlos Mulas-Granados, “Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries,” IMF Working Paper No. 02/77 (Washington, DC: International Monetary Fund). Also forthcoming in the Journal of International Money and Finance.
- Search Google Scholar
- Export Citation
)| false “ Gupta, Sanjeev, Benedict Clements, Emanuele Baldacci, and Carlos Mulas-Granados, Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries,” IMF Working Paper No. 02/77 ( Washington, DC: International Monetary Fund). Also forthcoming in the. Journal of International Money and Finance
Ravallion, Martin, and Monika Huppi, 1991, “Measuring Changes in Poverty: A Methodological Case Study of Indonesia During an Adjustment Period,” World Bank Economic Review, Vol. 5 (January), pp. 57–82.
Sadoulet, Elisabeth, and Alain de Janvry, 1995, Quantitative Development Policy Analysis: Exercise Solutions (Baltimore, Johns Hopkins University Press).
Taylor, Lance, 1990, “Structural CGE Models,” in Socially Relevant Policy Analysis: Structuralist Computable General Equilibrium Models for the Developing World, L. Taylor, ed. (Cambridge: MIT Press).
Benedict Clements is Deputy Division Chief of, and Sanjeev Gupta is Assistant Director in the Expenditure Policy Division of the IMF’s Fiscal Affairs Department. This paper was written while Mr. Jung was a Technical Assistance Advisor in the IMF’s Fiscal Affairs Department. The authors would like to thank Emanuele Baldacci, Benedict Bingham, Sri Mulyani Indrawati, and Shamsuddin Tareq for helpful comments on earlier drafts.
Most multisector CGE models assume that labor is mobile across production sectors during a given period and that the allocation of capital across sectors is fixed. However, since the total supplies of capital and labor are fixed during a period, the production level of the economy as a whole is essentially fixed.
The government and the state oil company (Pertamina) determine the subsidy at a level that compensates for the difference between production costs and the domestic sales prices. The World Bank (2000) estimates the economic subsidy (the difference between opportunity costs and selling prices) amounted to US$4.9 billion in 1999, which was about 5 percent of GDP in the year from April 1998 to March 1999.
Ahmad and Leruth (2000) note that about 30 percent of total production of kerosene is unaccounted for in consumption figures.
The production of petroleum is assumed to be unaffected by an increase in petroleum price. Higher domestic petroleum prices are assumed to lead to lower domestic demand, which is compensated for by higher exports.
See Gupta and others (forthcoming) for a review of the literature. Their findings show that in low-income countries that have not yet achieved macroeconomic stabilization, fiscal adjustment is associated with higher growth in both the short and long term.
The analysis assumes that the government does not use the savings reaped from subsidy reform for other government outlays.
Lower-income households depend on firewood for most of their fuel, and their shares of petroleum product consumption to total consumption are less than those of higher-income groups.
The average price index is calculated with weight of its share in GDP (total value added). As such, the change in prices is measured in terms of a GDP deflator, rather than a consumer price index.
Oil production is assumed to be unaffected by rising domestic prices, as higher exports are assumed to compensate for reduced domestic consumption.
If a higher price elasticity of demand is assumed, the first-round effects are smaller.