The Government of Indonesia increased the fuel prices in the third quarter of 2022 to reduce the burden on the national budget. Other than due to the global inflationary pressure on the national budget, the fuel subsidy in Indonesia disproportionately benefits the rich more than the poor (DJP Kemenkeu, 2022; Dartanto, 2013).

Almost similar to the previous reforms, the 2022 fuel price reform can lead to an increase in yearly inflation for not only transportation or fuel-related prices but also prices of other goods and services. To mitigate the potential adverse impact, the government topped up the social assistance programs using funds from the saved subsidy.

This research note estimated the effect of the fuel price increase and the additional social assistance fund on poverty and expenditure inequality in 2022 using a microsimulation approach. Its analysis used the inflation of commodities as the main channel of welfare change. The Note also simulated the disbursement of a large unconditional cash transfer as a follow-up policy from the fuel price reform (reallocating subsidy).
 

Suggested citation:

Al Izzati, Ridho, Asri Yusrina, and Asep Suryahadi (2023) ‘Estimating the Effect of a Fuel Price Increase on Poverty and Inequality: Evidence from a Fuel Subsidy Reduction in Indonesia.’ Research Note No. 1. Jakarta: The SMERU Research Institute <https://smeru.or.id/en/publication/estimating-effect-fuel-price-increase-poverty-and-inequality-evidence-fuel-subsidy> [access date].