Hicks in HANK: Fiscal Responses to an Energy Shock

Christian Bayer, Alexander Kriwoluzky, Gernot Müller and Fabian Seyrich

No 2056, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

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; HANK2; monetary union; spillovers; heterogeneity; inequality; households (search for similar items in EconPapers)
JEL-codes: D31 E64 F45 Q41 (search for similar items in EconPapers)
Pages: 50 p.
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-eec and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
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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