Energy prices, inflation, and distribution: A simulation model and policy analysis for Italy

Guilherme Spinato Morlin, Marco Stamegna and Simone D'Alessandro

Structural Change and Economic Dynamics, 2025, vol. 74, issue C, 28-39

Abstract: The surge in energy prices following the Russian-Ukrainian conflict triggered the most significant inflation in advanced economies in recent decades. Using the Eurogreen model for the Italian economy, we examine the macroeconomic and distributional impacts of rising energy prices alongside two policy measures: wage indexation and a temporary housing rent cap. We compare policy scenarios with a baseline reflecting the observed price shocks. We find that: i) energy price shocks disproportionately affect lower-income individuals due to the larger share of energy goods in their consumption baskets; ii) wage indexation results in higher average real wages compared to the baseline scenario, without triggering inflation acceleration, while temporarily boosting output and employment by supporting aggregate demand; iii) a temporary housing rent cap improves distribution in workers’ favor while reducing inflation; iv) both policies have a more substantial effect for low-skilled workers; and v) best outcomes appear when these policies are jointly implemented.

Keywords: Input-output; Income distribution; Wage indexation; Conflict inflation; Rent cap (search for similar items in EconPapers)
JEL-codes: D30 E24 E31 E64 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:74:y:2025:i:c:p:28-39

DOI: 10.1016/j.strueco.2025.03.002

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