Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe

Nicolas Arregui, Oya Celasun, Dora Iakova, Aiko Mineshima, Victor Mylonas, Frederik Toscani, Yu Ching Wong, Li Zeng and Jing Zhou

No 2022/262, IMF Working Papers from International Monetary Fund

Abstract: The recommended way of helping households during the ongoing European energy crisis is to allow price signals to operate freely while providing targeted compensation to the vulnerable. In practice, however, institutional, political, and technical constraints have led many European governments to adopt broad, price-suppressing measures, which impede the adjustment in demand, have high fiscal costs, and widen cross-country gaps in prices. This paper focuses on easy-to-implement, second-best policies. Bonuses or rebates on energy bills (that are not linked to the current volume of consumption) or block tariffs are simple options which would improve on the current policy design in many countries. To avoid stoking inflation, fiscal policy should not add to aggregate demand, so relief for energy bills should be targeted and coupled with offsetting fiscal measures. One option is to reclaim the relief from the better-off through income taxation, which would also make support more progressive.

Keywords: energy prices; price pass-through; household incidence; distributional analysis; social safety nets; energy cost support measure; I. consumer energy price inflation; price signal; price-suppressing measure; EU government; Energy pricing; Consumption; Natural gas sector; Income; Europe (search for similar items in EconPapers)
Pages: 24
Date: 2022-12-16
New Economics Papers: this item is included in nep-ene and nep-reg
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Citations: View citations in EconPapers (6)

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