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Oil Subsides impact on a government budget in Indonesia Iran and Venezuela - Essay Example

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It is reported that global oil consumption will reach 90 million barrels per day reflecting commitment of many countries in providing subsidies for gasoline and oil. Subsidies on fuel products normally influence the steady state level of macroeconomic aggregates such as…
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Oil Subsides impact on a government budget in Indonesia Iran and Venezuela
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Oil Subsides impact on a government budget in Indonesia Iran and Venezuela

Download file to see previous pages... It is worth noting that subsidies on fuel consumption have critical macroeconomic consequences and that many subsidies fail to serve their purpose thus causing unsustainable development. This paper attempts to analyze oil subsides’ impact on a government budget in Indonesia Iran and Venezuela.
Globally, all governments are greatly concerned with their energy sectors because of the key role energy plays in the economic development. Energy consumption calls for public interventions such as use of direct grants and all sorts of tax break that are hidden in public and economic structures (Gavish & Gavish, 2012). Two-thirds of all subsidies flow to fossil fuels where subsidies to energy production are common in industrialized countries while support to energy consumption dominate developing countries (Davis, 2013). Different categories of subsidies have different impacts that include low energy prices that enhance overuse and waste while underpricing hurts energy producers. On the other hand, producer subsidies promote overproduction characterized by protection and quantity regulations that trigger further distortions in the local economy.
Rationale to subsidize energy has always been to stimulate economic growth but the notion changed after the oil crises in 1970s. The growth motive was no longer considered important because governments thought it necessary to safeguard domestic energy supply while developing countries subsidized energy consumption to fuel economic growth. According to Davis (2013), energy subsidies are believed to avert possible barriers to growth although this concept has been proven ineffective especially in stimulating economic growth. According to Gavish & Gavish (2012), there are studies that show that energy subsidies hamper economic growth and therefore eliminating them (subsidies) may provide incentives for a more efficient resource allocation and spur economic growth. Moreover, energy subsidies ...Download file to see next pagesRead More
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