Easing the traffic: The effects of Indonesia’s fuel subsidy reforms on toll-road travel

Abstract

Indonesia has serious traffic jams. This study uses data from 19 Indonesian toll roads over 2008-2015 to calculate the effects of Indonesia's historic recent fuel subsidy reforms on motor vehicle travel. The timing of the reforms was determined by budgetary and political factors, providing a suitable setting for estimating a causal effect. We control for a broad set of other factors potentially influencing traffic flows. Estimates using monthly data suggest an immediate fuel price elasticity of motor vehicle flows on the roads in our study of -0.1, increasing to -0.2 when responses over a year are considered. We estimate that Indonesia's fuel subsidy reforms of 2013 and 2014 had reduced traffic pressure on these roads in the second half of 2015 by around 10% relative to the counterfactual without reform. A move to an adequate fuel excise system could contribute to more free-flowing traffic, while generating revenue for infrastructure and other investment.

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