Hicks in HANK: Fiscal Responses to an Energy Shock

Christian Bayer, Alexander Kriwoluzky, Müller, Gernot and Fabian Seyrich
Authors registered in the RePEc Author Service: Gernot J. Müller

No 18557, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 that we calibrate to the euro area. Energy subsidies can stabilize the domestic economy, but are fiscally costly and generate adverse spillovers to the rest of the monetary union: What the subsidizing country gains, the other countries lose. Transfers based on historical energy consumption in the form of a Hicks/Slutsky compensation are less effective domestically as subsidies but do not harm economic activity abroad. In addition, transfers increase welfare at Home while subsidies reduce welfare.

Keywords: Energy crisis; Subsidies; Transfers (search for similar items in EconPapers)
JEL-codes: D31 E64 F45 Q41 (search for similar items in EconPapers)
Date: 2023-10
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Working Paper: Hicks in HANK: Fiscal Responses to an Energy Shock (2023)
Working Paper: Hicks in HANK: Fiscal Responses to an Energy Shock (2023)
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