Abstract
The energy consumption is projected to improve living standards and the economy of society. However, for achieving this objective, the government should spend much money in kind of subsidies especially in fuel oil. In several previous studies, they stated that the Indonesia government was experiencing a budget deficit due to their policy about fuel oil subsidy policy. Thus, the purpose of this study is to examine the efficiency of government spending regarding fuel oil subsidy policy in Indonesia. This study designed by using quantitative analysis collected from three data sources, namely Bank Indonesia, Central Bureau of Statistics, and the Ministry of Energy and Mineral Resources. The quarterly data for 21 years which consists of 1996 to 2017 analysed using the stochastic frontier model by assisting statistical software, namely Eviews 10. In this study, we examine the relationship government expenditure via fuel subsidy policy (FUELsubs) on economics growth (GDPpc). Also, the relationship between unemployment (UNEMPLY) and inflation rates (INFL). Besides, for analysing the efficiency of government expenditure on energy consumption (FUEL) subsidy policy in Indonesia, we use the estimation values of the stochastic frontier model through error components, vi and ui. The results of this study found the fuel subsidy policy does not meet the energy subsidy target for the Indonesian economy. Then, there is inefficiency in subsidies that impacts the tradeoff between unemployment and inflation. Keywords: Energy Consumption (Fuel), Fuel Policy, Fuel Subsidy, Government expenditure, Unemployment, Economic Growth.JEL Classifications: Q41, Q43, Q48, E62, E24, O11DOI: https://doi.org/10.32479/ijeep.9507
Highlights
The primary purpose of fuel subsidy is to distributing the output through the demand and supply elasticity, price stability and intervention mechanism (Secretariat General of National Energy Council, 2019)
The decreasing oil production affects the ratio of oil import dependency increase as much as 35% and it impacts on the government expenditure budget in the energy sector (Secretariat General of National Energy Council, 2019)
Fuel subsidies in Indonesia are inefficient from any government expenditure
Summary
The primary purpose of fuel subsidy is to distributing the output through the demand and supply elasticity, price stability and intervention mechanism (Secretariat General of National Energy Council, 2019). The fuel subsidy in Indonesia obtained from the selling of fuel by Pertamina (State-Owned Company) in providing and distributing the fuel oil the whole area of Indonesia. It is lower than the costs incurred to produce and distribute the fuel. The energy subsidies are a part of fiscal policy and usually allocated a sizeable budget. Subsidies are sourced from government expenditure budget and one causes the government budget deficits
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