Who gains most from fuel subsidies and manufacturing sector strengthening? Evidence from Indonesia’s social accounting matrix

This study analyses the distributional impacts of fuel subsidies and manufacturing-sector strengthening on household income and sectoral output in Indonesia. Using Indonesia’s 2022 Social Accounting Matrix (SAM), the study applies multiplier decomposition and policy simulation to trace how these policies transmit income effects across household income groups and economic sectors. The results show that high-income households received the largest nominal income gains, amounting to IDR 654.78 trillion, while low-income households experienced the highest percentage income growth, at 3.99%. The manufacturing sector recorded the highest global multiplier values across all channels, including income creation (1.47), institutions (4.88), the production sector (10.58), and commodities (9.87), confirming its role as a key driver of economic activity through strong backward and forward linkages. However, the distribution of benefits across household groups remained structurally uneven. High-income households consistently recorded higher open-loop and closed-loop multipliers than low-income households, reflecting their greater capacity to capture, circulate, and reinvest the effects of fiscal injections. These findings suggest that fuel subsidies and manufacturing-sector strengthening generate broadly positive but unevenly distributed economic effects: proportionally pro-poor but nominally pro-rich. Tighter subsidy targeting, combined with continued investment in inclusive manufacturing linkages, is essential to ensure that these policies deliver more equitable and broad-based income growth across household groups in Indonesia.