Macroeconomic effects of fiscal policy under an energy supply shock

We study the potential effects on the real economy and welfare of four fiscal policy responses to an energy supply shock: energy vouchers to all households, only to lowincome households, or to non-energy goods producers, and subsidies for investments in the energy sector. The analysis relies on a DS...

Full description

Saved in:
Bibliographic Details
Published in:Working paper 2024
Main Authors: Gustafsson, Johan, Maih, Junior, Vesterberg, Mathias, Ma, Xiaofei
Format: Article
Language:English
Subjects:
energy price
energy voucher
investment subsidy
Online Access:Request full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We study the potential effects on the real economy and welfare of four fiscal policy responses to an energy supply shock: energy vouchers to all households, only to lowincome households, or to non-energy goods producers, and subsidies for investments in the energy sector. The analysis relies on a DSGE model that explicitly models the energy sector. Calibrating the model to Swedish data, our results show that the subsidy for the investment in energy sector is the most effective instrument to reduce the energy price in the short- to medium term. This policy is, however, welfare dominated by energy vouchers given to households as it immediately compensates low-income, non-saving households in the event of the shock. Giving the energy voucher to the non-energy firms prevents energy prices from falling as fast as they would without policy intervention. It is also the least desirable from a welfare perspective.