Reducing Fuel Subsidies and Financing Road Infrastructure in Indonesia: A Financial Computable General Equilibrium Model. Issue 1 (2nd January 2021)

• Record Type: Journal Article
• Authors: Kim, Euijune; Samudro, Yasir Niti
• Is Part Of: Bulletin of Indonesian economic studies. Volume 57:Issue 1(2021)
• Page Start: 111
• Page End: 133
• Publication Date: 2021-01-02
• Subjects: economic growth -- financial computable general equilibrium model -- FCGE -- financial social accounting matrix -- FSAM -- income distribution -- welfare -- transport; C68 -- H54 -- O18; Indonesia -- Economic conditions -- Periodicals; 330.9598
• DOI: 10.1080/00074918.2019.1643824
• Languages: English
• ISSNs: 0007-4918

Abstract

Abstract : This article analyses whether government policies that reallocate funding for fuel subsidies to investment in transport infrastructure improve economic growth and income distribution. We develop a financial computable general equilibrium model to simulate the fiscal policies that reduce fuel subsidies to finance road investment. The novelty of this article is a dynamic model that covers multiple sectors, households, economic actors, assets and labour types. We find that reallocating fuel subsidy funding to infrastructure investment positively affects economic growth but adversely affects equality. We also find that investing in infrastructure through bank loans results in better economic growth and income distribution than reallocating subsidy funding does. Lastly, we find that investing in transport infrastructure through tax revenue can improve welfare, economic growth and income distribution.