The economics of energy subsidies in Southeast Asian countries.

• Main Authors: Chew, Siang Han., Lim, Wing Sing., Tan, Yong Xi.
• Other Authors: Chang Youngho
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Social sciences::Economic development::Southeast Asia
• Online Access: http://hdl.handle.net/10356/48833
• Institution: Nanyang Technological University

Energy subsidy policies have been popular with governments as a means of alleviating the burden of utility bills on the low-income household groups. This study aims to analyze the effects of energy subsidies imposed on the economies of selected countries (namely Malaysia, Thailand and Indonesia) as well as the impacts on the welfare of the intended recipients, with Singapore acting as a control. Theoretically, deadweight loss results from the distortions in behavior as a result of the implementation of subsidies. Regression analysis results show that the deadweight loss accrued from the changes in demand schedule is significant and detrimental to the efficiency of Indonesia and Malaysia, with estimates of 0.34% and 2% of the value of petroleum products traded annually respectively, although the deadweight loss accrued by Thailand‟s policy cannot be estimated. These figures are, however, underestimates of actual figures given the assumption of producers‟ perfectly elastic supplies. This study also reveals that the efficacy of subsidy programs is low – in both Indonesia and Malaysia, the poor account for only an estimated 5% of total energy consumption. Hence, most of the subsidies benefit the rich rather than the poor. With the detrimental effects of subsidies threatening to overshadow the intended benefits, these countries have been slowly moving away from its extensive subsidy programs.