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Redistribution Within and Across Borders: The Fiscal Response to an Energy Shock

Author

Listed:
  • Christian Bayer

    (University of Bonn, CEPR, CESifo & IZA)

  • Alexander Kriwoluzky

    (Freie Universität Berlin & DIW Berlin)

  • Gernot J. Müller

    (University of Tübingen, CEPR & CESifo)

  • Fabian Seyrich

    (Frankfurt School of Finance & Management & DIW Berlin)

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 calibrated to the euro area. Subsidies can stabilize the domestic economy, but they are fiscally costly and generate negative spillovers to the rest of the monetary union: What the subsidizing country gains, other countries lose. Transfers based on historical gas consumption in the form of a Slutsky compensation are less effective domestically than subsidies, but do not harm economic activity abroad. Moreover, transfers increase domestic welfare, while subsidies decrease it.

Suggested Citation

  • Christian Bayer & Alexander Kriwoluzky & Gernot J. Müller & Fabian Seyrich, 2025. "Redistribution Within and Across Borders: The Fiscal Response to an Energy Shock," ECONtribute Discussion Papers Series 361, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:361
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_361_2025.pdf
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    References listed on IDEAS

    as
    1. Adrien Auclert & Ludwig Straub & Matthew Rognlie, 2019. "Micro Jumps, Macro Humps: monetary policy and business cycles in an estimated HANK model," 2019 Meeting Papers 1449, Society for Economic Dynamics.
    2. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    3. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-475, May.
    4. Bachmann, Rüdiger & Born, Benjamin & Goldfayn-Frank, Olga & Kocharakov, Georgi & Luetticke, Ralph & Weber, Michael, 2021. "A Temporary VAT Cut as Unconventional Fiscal Policy," CEPR Discussion Papers 16690, Centre for Economic Policy Research.
    5. Bayer, Christian & Kriwoluzky, Alexander & Müller, Gernot J. & Seyrich, Fabian, 2024. "A HANK2 model of monetary unions," Journal of Monetary Economics, Elsevier, vol. 147(S).
    6. Chan, Jenny & Diz, Sebastian & Kanngiesser, Derrick, 2024. "Energy prices and household heterogeneity: Monetary policy in a Gas-TANK," Journal of Monetary Economics, Elsevier, vol. 147(S).
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    Cited by:

    1. Antonova, Anastasiia & Müller, Gernot J., 2026. "Distorted prices and targeted taxes in the New Keynesian Network model," Journal of Monetary Economics, Elsevier, vol. 158(C).

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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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