The impact of energy and non-energy subsidies on rural and urban poverty levels in Indonesia

Indonesian government have adopted various measures to address poverty in both urban and rural areas, including the provision of subsidy. This study provides new insights into the dynamic and unanswered relationship between energy and non-energy subsidies and poverty levels in Indonesia, as depicted from an urban and rural perspective. Energy subsidies are fuel oil and electricity while non-energy subsidies are fertilizer, PSO, credit program, tax and data for the period of 2008 to 2022. This study uses ARDL-ECM and VECM approach. The VECM estimation results for rural poverty in all models are negative and significant, indicating that the error correction adjustment in the long run is quickly. In the short term, changes in fuel oil subsidies do not significantly impact urban poverty, as evidenced by the lack of significance across the lag variables for fuel oil. A similar pattern is observed in urban areas, where adjustments in fuel oil subsidies do not lead to a meaningful reduction in poverty. However, in the long run, a robust relationship emerges between rural poverty and fuel oil subsidies, a relationship that does not manifest in urban areas.