Why Fuel Subsidies Might Actually be Pro-Poor

Just a simple thought that flashed through my mind after hearing many people say that fuel subsidies in Indonesia is pro-rich. Yes, I know that more than half of the subsidies is enjoyed by the top 10% income earners, the bottom 10% only get like 2-3% and yada yada yada, but come to think of it, maybe our government just believes in trickle down economics. It’s basically a tax cut to stimulate the economy, right?
Here it goes: Fuel subsidy leaves middle-up people a little bit richer, giving them a little bit more disposable income. Now, the richer you are, the more you save, meaning that this extra income for the rich/middle up will lead to more national savings compared to if the money is distributed towards poorer people. Theoretically, a one rupiah increase in national savings should lower interest rates just enough to induce one rupiah additional investment. In another word, more savings also means more money there is in the money market to be borrowed to fund investment activities. So more savings = more investment, which then also means MORE JOBS. The more jobs available, the more opportunity the unemployed (majority of which are poor) to get employed.
In a zip: fuel subsidies à more disposable income à more savings à more investments à more jobs for the poor.
Not exactly pro-rich eh? 

2 Replies to “Why Fuel Subsidies Might Actually be Pro-Poor”

  1. you said: 'Now, the richer you are, the more you save…'
    i'm not really sure middle-up would do this if they become a little bit richer.. if that's me, i rather to spend it to buy some gadget 😀 lol

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