Economy-Wide Impacts of Electricity Tariff Reductions in Indonesia: A Social Accounting Matrix Approach

Research Originality — Previous studies have relied on regression techniques. In contrast, this study uses a more pragmatic method. It utilizes the Social Accounting Matrix (SAM) in conjunction with Path Analysis to determine the holistic economic impact (both direct and indirect) of the reduction in electricity tariffs. This method will determine the impact of lowered electricity costs on various sectors, in terms of the outputs, wages, gross operating surplus (GOS), tax revenue, and gross domestic product (GDP) through various channels. Research Objectives — The objective of this study is to assess the economic-wide impact of 50% electricity tariff discount introduced in early 2025 in Indonesia, with a focus on changes in sectoral output, wages, GOS, tax revenues, and GDP. Research Methods — This study uses SAM multiplier and Path Analysis to assess the economic impact and show how tariff reductions affect wages, GOS, tax revenues, and GDP. Empirical Results — The results indicate that the policy increases Indonesia’s GDP by 0.12%. Growth occurs in several important sectors, including mining, manufacturing, electricity supply, construction, trade, transportation, and real estate. Furthermore, wages and GOS increase by 0.09% and 0.22% respectively, while tax revenues decline by 0.86%. Implications — The results imply that the electricity tariff reductions can contribute positively to Indonesia’s 2025 economic growth. For Government, it provides evidence that the policy shall be brought back at the start of the year to support economic growth, implemented similar actions during slowdowns, and boost tax collection to avoid revenue losses while the policy is running.