Estimation of the Effect of Carbon Tax Implementation on Household Income Distribution in Indonesia: Quantitative Analysis with Miyazawa Input- Output Approach

TL;DR

This paper quantitatively analyzes how implementing a carbon tax in Indonesia affects household income distribution across different income groups, revealing a regressive impact that disproportionately burdens low-income households.

Contribution

It applies the Miyazawa Input-Output approach to assess the impact of carbon tax on household income distribution in Indonesia, a novel application for this context.

Findings

Low-income households experience greater income reduction due to carbon tax.

Urban households in the lowest income class lose IDR 19,144.85 million.

Rural households in the lowest income class lose IDR 8,819.13 million.

Abstract

Climate change is a global challenge caused by greenhouse gas emissions from fossil fuel use. Indonesia, as a developing country, faces major challenges in implementing carbon tax policies to reduce emissions, especially related to their regressive impacts on low-income households. Currently, there is little in-depth research on how carbon tax policies impact household income distribution in Indonesia. This study uses a quantitative approach with the Input- Output model to analyze the impact of carbon tax on household income based on 10 income groups, both in urban and rural areas. The results show that carbon tax policies have a regressive impact, where low-income households bear a proportionally greater burden. Household income in Class - 10 decreased by IDR 19,144.85 million in urban areas and IDR 8,819.13 million in rural areas, while households in Class - 1 decreased by IDR 954.23 million. Therefore, mitigation policies such as cross subsidies are needed to reduce the impact on vulnerable groups. These findings are important for policy makers in formulating fair and effective fiscal policies, as well as ensuring social justice in the context of sustainable development. This study has limitations in the scope of analysis of long-term energy consumption behavior and certain sectors, so further research is needed to deepen these aspects.