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Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe

Author

Listed:
  • Mr. Nicolas Arregui
  • Oya Celasun
  • Ms. Dora M Iakova
  • Ms. Aiko Mineshima
  • Mr. Victor Mylonas
  • Mr. Frederik G Toscani
  • Yu Ching Wong
  • Mr. Li Zeng
  • Jing Zhou

Abstract

The recommended way of helping households during the ongoing European energy crisis is to allow price signals to operate freely while providing targeted compensation to the vulnerable. In practice, however, institutional, political, and technical constraints have led many European governments to adopt broad, price-suppressing measures, which impede the adjustment in demand, have high fiscal costs, and widen cross-country gaps in prices. This paper focuses on easy-to-implement, second-best policies. Bonuses or rebates on energy bills (that are not linked to the current volume of consumption) or block tariffs are simple options which would improve on the current policy design in many countries. To avoid stoking inflation, fiscal policy should not add to aggregate demand, so relief for energy bills should be targeted and coupled with offsetting fiscal measures. One option is to reclaim the relief from the better-off through income taxation, which would also make support more progressive.

Suggested Citation

  • Mr. Nicolas Arregui & Oya Celasun & Ms. Dora M Iakova & Ms. Aiko Mineshima & Mr. Victor Mylonas & Mr. Frederik G Toscani & Yu Ching Wong & Mr. Li Zeng & Jing Zhou, 2022. "Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe," IMF Working Papers 2022/262, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2022/262
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    Citations

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    Cited by:

    1. Josef Baumgartner & Jürgen Bierbaumer & Sandra Bilek-Steindl & Benjamin Bittschi & Christian Glocker & Christine Mayrhuber & Margit Schratzenstaller, 2023. "Geopolitical Tensions, Energy Crisis and Inflation Shape Economic Activity. The Austrian Economy in 2022," WIFO Reports on Austria, WIFO, issue 7, May.
    2. Mr. Anil Ari & Mr. Carlos Mulas-Granados & Mr. Victor Mylonas & Mr. Lev Ratnovski & Wei Zhao, 2023. "One Hundred Inflation Shocks: Seven Stylized Facts," IMF Working Papers 2023/190, International Monetary Fund.
    3. Blagica Petreski & Marjan Petreski & Despina Tumanoska & Marija Basheska, 2024. "The Fiscal Space in the Western Balkans: Evidence from the Recent Multilayer Crisis," Finance Think Policy Studies 2024-04/51, Finance Think - Economic Research and Policy Institute.
    4. Bettarelli, Luca & Estefania-Flores, Julia & Furceri, Davide & Loungani, Prakash & Pizzuto, Pietro, 2023. "Energy inflation and consumption inequality," Energy Economics, Elsevier, vol. 124(C).
    5. Frédéric Gonand & Pedro Linares & Andreas Löschel & David Newbery & Karen Pittel & Julio Saavedra & Georg Zachmann, 2024. "Watts Next: Securing Europe’s Energy and Competitiveness - Where the EU’s Energy Policy Should Go Now," EconPol Policy Reports 49, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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