Easing the traffic: The effects of Indonesia’s fuel subsidy reforms on toll-road travel

Abstract

Indonesia has serious traffic jams. This study uses data from 19 Indonesian toll roads over 2008–2015 to calculate the effects of Indonesia’s historic recent fuel subsidy reforms on motor vehicle travel. The timing of the reforms was determined by budgetary and political factors, providing a suitable setting for estimating a causal effect. We control for a broad set of other factors potentially influencing traffic flows. Estimates using monthly data suggest an immediate fuel price elasticity of motor vehicle flows on the roads in our study of –0.1, increasing to –0.2 when responses over ayear are considered. We estimate that Indonesia’s fuel subsidy reforms of 2013 and 2014 had reduced traffic pressure on these roads in the second half of 2015 by around 10% relative to the counterfactual without reform. A move to an adequate fuel excise system could contribute to more free-flowing traffic, while generating revenue for infrastructure and other investment.