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Hicks in HANK: Fiscal Responses to an Energy Shock

Author

Listed:
  • Bayer, Christian
  • Kriwoluzky, Alexander
  • Müller, Gernot
  • Seyrich, Fabian

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.

Suggested Citation

  • Bayer, Christian & Kriwoluzky, Alexander & Müller, Gernot & Seyrich, Fabian, 2023. "Hicks in HANK: Fiscal Responses to an Energy Shock," CEPR Discussion Papers 18557, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18557
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    More about this item

    Keywords

    Energy crisis; Subsidies; Transfers;
    All these keywords.

    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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