Fiscal Policy and Energy Price Shocks

Alkis Blanz (), Ulrich Eydam, Maik Heinemann (), Matthias Kalkuhl () and Nikolaj Moretti ()
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Alkis Blanz: University of Potsdam, MCC Berlin
Maik Heinemann: University of Potsdam
Matthias Kalkuhl: University of Potsdam, MCC Berlin
Nikolaj Moretti: University of Potsdam, MCC Berlin

No 70, CEPA Discussion Papers from Center for Economic Policy Analysis

Abstract: The effects of energy price increases are heterogeneous between households and firms. Financially constrained poorer households, who spend a larger relative share of their income on energy, are particularly affected. In this analysis, we examine the macroeconomic and welfare effects of energy price shocks in the presence of credit-constrained households that have subsistence-level energy demand. Within a Dynamic Stochastic General Equilibrium (DSGE) model calibrated for the German economy, we compare the performance of different policy measures (transfers and energy subsidies) and different financing schemes (income tax vs. debt). Our results show that credit-constrained households prefer debt over tax financing regardless of the compensation measure due to their difficulty to smooth consumption. On the contrary, rich households tend to prefer tax-financed measures as they increase the labor supply of poor households. From an aggregate perspective, tax-financed measures targeting firms effectively cushion aggregate output losses.

Keywords: energy prices; E-DSGE; fiscal policy; welfare (search for similar items in EconPapers)
JEL-codes: E62 E64 H31 H32 Q43 Q52 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-dge, nep-ene, nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:pot:cepadp:70

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