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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
    File Function: First version, 2025
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    More about this item

    Keywords

    Energy Crisis; Subsidies; Transfers; HANK2; Monetary Union; International Spillovers; Heterogeneity; Inequality; Households;
    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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