Archive for the 'Political business cycles' Category

Fuel prices and political business cycles

A few years back when the Indonesian government, on the advice of the World Bank and IMF, decided to make cuts in subsidies for fuel. This caused a lot of resentment, and demonstrations took place in the major cities.

The argument from the defenders of the cut in subsidies was not bad, on my view. Subsidies used to be relatively cheap economically when Indonesia was a great net exporter of oil, and very easy to administer. The effect would be to support infrastructure across the country. Now the subsidies are a lot less cheap.

In addition to subsidies being expensive, there are two main downsides to this policy. From a distributional perspective it is a problem that the more fuel you consume, the higher the subsidy. So the richer you are, the more subsidies you get. From an environmental perspective it is a problem that the relative benefits of investing in less fuel consuming means of transportation have been low.

Together, these two problems go some way toward explaining the huge problems of traffic congestion and pollution in Indonesia.

Continue reading ‘Fuel prices and political business cycles’

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A dull file…

"Politics is a dull file which cuts gradually and slowly arrives at its end.” (Montesquieu)

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