Support measures in the face of the energy crisis and the rise in inflation: an analysis of the cost and distributional effects of some of the measures rolled out based on their degree of targeting

Rationale A variety of policy measures have been put in place in recent months to support households and firms through the upswing in prices. Analysing the design of these measures, as well as their distributional and budgetary impact, is crucial in any economic context, but even more so at the current juncture, characterised by the presence of fiscal imbalances. Takeaways • Most of the fiscal measures recently implemented in Spain to tackle the energy crisis and surging prices are largely non-targeted measures, rather than measures targeted at the most vulnerable households and firms. • According to calculations, the reductions in VAT on basic foodstuffs and on electricity and gas resulted in greater savings for low-income households as a percentage of their total expenditure, while the fuel subsidy may have benefited high-income households relatively more. • Alternative measures targeting vulnerable households based on their income could provide protection at a level that is comparable to the actual measures but at a lower cost and without distorting price signals.