[FKP hosted by CEDS UNPAD] Presentations on Household Preferences for Electricity Attributes and on Fiscal Policy Optimality and Sustainability

fkp 30 nov 2016Report by Adinda Rizky Herdianti

The last session of FKP in November 2016 consisted of two researchers from the Center for Economics and Development Studies (CEDS) Universitas Padjadjaran, Martin Siyaranamual and Rudi Kurniawan. Both of them presented fairly different topics: Martin Siyaranamual discussed his recent study on “Retailing Private and Public Attributes in Electricity Service: A Discrete Choice Experiment Study in Indonesia” and Rudi Kurniawan explained his observation on the topic of “Optimality and Sustainability of Fiscal Policy in Indonesia”.

Being the first one to speak, Martin opened his presentation with the number of electrification ratio in Indonesia which is relatively lower with the neighboring countries. The problem being addressed in the study is the lack of public discussion regarding the demand side of electricity while the growing urban middle-class households are becoming more dominant, and as classical economics predicts, electricity services will be under-supplied. The study intends to estimate Indonesian households Marginal Willingness to Pay (MWTP) for private and public attributes of electricity services.

The field research for the study was conducted in Bandung with 1520 respondents. Each of the respondents was required to answer a questionnaire containing several sets of choice related to power outage, rural electrification, coal vs. water generator, and tariffs. The study found that people are actually willing to pay for electricity services improvement: shorter duration of outage, more environmental-friendly source, higher rural electrification, and cheaper price. That being said, the results indicate customers’ willingness to pay for capital and maintenance planning should the subsidy for electricity be reduced.

The presentation was followed by a lively Q&A session, particularly regarding technical aspect of the field research such as choice selection. One interesting question coming from one the participants was the psychological realm of this survey: how can urban residents relate to rural electrification and generator source that are far from them. Martin said that it was already captured in the MWTP selected by respondents.

The next topic being discussed was “Optimality and Sustainability of Fiscal Policy in Indonesia” by Rudi Kurniawan. Indonesia’s fiscal deficits can be maintained at modest levels over time, even during the Asian Financial Crisis in 1997/1998. However, tax revenue moves upward sluggishly after the year of 2000. The study was built upon the underlying reasons of tax deficit in developing and developed countries, one of which is to keep the tax rate relatively constant over time (tax smoothing). Tax smoothing itself is closely related to sustainable fiscal policy, which is designed to avoid the need of major adjustment in the future.

The study uses data on the tax rate from 1970 to 2010 for tax smoothing analysis and from 1990 to 2010 for fiscal sustainability analysis. Rudi utilized four methods of analyzing tax smoothing: conventional (ADF, PP, KPSS), Zivot-Andrews structural break, univariate autoregression (AR), and vector autoregression (VAR). For fiscal sustainability analysis, the study checked whether or not debt to GDP ratio follows mean-reverting process by regressing change of debt-to-GDP ratio against temporary fluctuations in output and temporary government expenditure.

Results from the four models suggest that tax smoothing theory is applicable in Indonesia and Indonesian fiscal policy appears to have been efficient over the period of 1970 and 2010. The Indonesian Government has systematically responded to decreases in the debt-to-GDP ratio by reducing primary balances surplus. The result implies that Indonesian fiscal policy has been sustainable.

Unfortunately, due to a technical problem, videos are not available for this session.

Presentation files

FKP 11 30 2016 Siyaranamual Retailing Private and Public Attributes in Electricity Services

FKP 11 30 2016 Kurniawan Optimality and Sustainability of Fiscal Policy in Indonesia