Redistribution Within and Across Borders: The Fiscal Response to an Energy Shock

Christian Bayer (), Alexander Kriwoluzky (), Gernot J. Müller () and Fabian Seyrich ()
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Christian Bayer: University of Bonn, CEPR, CESifo & IZA
Alexander Kriwoluzky: Freie Universität Berlin & DIW Berlin
Gernot J. Müller: University of Tübingen, CEPR & CESifo
Fabian Seyrich: Frankfurt School of Finance & Management & DIW Berlin

No 361, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: The distributional and disruptive effects of energy supply shocks are potentially large. We study the effectiveness of alternative fiscal responses in a two-country HANK model calibrated to the euro area. Subsidies can stabilize the domestic economy, but they are fiscally costly and generate negative spillovers to the rest of the monetary union: What the subsidizing country gains, other countries lose. Transfers based on historical gas consumption in the form of a Slutsky compensation are less effective domestically than subsidies, but do not harm economic activity abroad. Moreover, transfers increase domestic welfare, while subsidies decrease it.

Keywords: Energy Crisis; Subsidies; Transfers; HANK2; Monetary Union; International Spillovers; Heterogeneity; Inequality; Households (search for similar items in EconPapers)
JEL-codes: D31 E64 F45 Q41 (search for similar items in EconPapers)
Pages: 61
Date: 2025-04
New Economics Papers: this item is included in nep-dge and nep-eec
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