Structural Path Analysis of Fuel Subsidy and Road Investment Policies: Application of Indonesian Financial Social Accounting Matrix
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The purpose of this paper is to analyze whether government policy to reallocate fuel subsidy into infrastructure development is favorable for Indonesian economy in terms of GDP and income distribution. We apply a structural path analysis to policy simulations for the fuel subsidy and the road investment sector, calibrating a 2008 Financial Social Accounting Matrix of Indonesia. We find that if the government cut the fuel subsidy then households adjust with the change in consumption pattern by consuming other goods that are also subsidized by the government. Transportation investment policy brings a positive influence on GDP. In the other hand, the policy brings investment in transport multiplier for all household groups decreased, except for rural high (RH) household, this decrease in multiplier led to worsening inequalities. The policy of shifting fuel subsidies into road investments generates a negative subsidy multiplier and negative investment in transportation multiplier to GDP compared to the baseline. In terms of income distribution, the effect is widening income inequality among income classes. The shifting of fuel subsidy to transport investment yield a detrimental effect on both GDP and income distribution. If the priority is income distribution, then measures taken are cutting fuel subsidies. But, if the goal is economic growth then the provision of transport infrastructure is the choice to support economic activity.
Abstract
The purpose of this paper is to analyze whether government policy to reallocate fuel subsidy into infrastructure development is favorable for Indonesian economy in terms of GDP and income distribution. We apply a structural path analysis to policy simulations for the fuel subsidy and the road investment sector, calibrating a 2008 Financial Social Accounting Matrix of Indonesia. We find that if the government cut the fuel subsidy then households adjust with the change in consumption pattern by consuming other goods that are also subsidized by the government. Transportation investment policy brings a positive influence on GDP. In the other hand, the policy brings investment in transport multiplier for all household groups decreased, except for rural high (RH) household, this decrease in multiplier led to worsening inequalities. The policy of shifting fuel subsidies into road investments generates a negative subsidy multiplier and negative investment in transportation multiplier to GDP compared to the baseline. In terms of income distribution, the effect is widening income inequality among income classes. The shifting of fuel subsidy to transport investment yield a detrimental effect on both GDP and income distribution. If the priority is income distribution, then measures taken are cutting fuel subsidies. But, if the goal is economic growth then the provision of transport infrastructure is the choice to support economic activity.
참고문헌 (23)
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