27 Jun 2018

Electricity subsidy reform in Indonesia: Demand-side effects on electricity use


Indonesia's budget has for years been burdened by large subsidies for electricity consumption. A series of recent
reforms has delivered a substantial reduction in these subsidies. In this paper we estimate demand-side effects of
these reforms on electricity use. Our analysis utilizes a three-dimensional dataset covering six consumer groups,
16 regions, and 1992–2015. We control for various fixed effects, and use an instrumental variable approach. Our
estimates suggest that subsidy reductions since 2013 had induced savings in annual electricity use of around 7%
relative to the no-reform counterfactual as of 2015. The phase-out of remaining subsidies has the potential to
generate further improvements in the efficiency of electricity use, while freeing up resources for other priorities
such as infrastructure spending.


Full text available at https://doi.org/10.1016/j.enpol.2018.02.018


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