Fuel subsidy is a common phenomenon in many countries, including Indonesia. Fuel subsidies are generally implemented to protect consumers, especially poor households, from high and volatile fuel costs for lighting, cooking, and transportation. However, fuel subsidies are both inefficient and inequitable (IMF,
2013; del Granado, Coady, & Gillingham, 2012). They encourage excessive fuel use, delay the implementation of energy-saving technologies, and can be designated as high priority public spending that can in turn result in reduced spending on physical infrastructure, education, health, and social protection. Most of the benefits of fuel subsidies also go to high-income groups who tend to consume more fuel (Dartanto, 2013; Del Granado et al., 2012).
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