Template-Type: ReDIF-Paper 1.0
Title: Hicks in HANK: Fiscal Responses to an Energy Shock
Author-Name: Christian Bayer
Author-Email: christian.bayer@uni-bonn.de
Author-Name: Alexander Kriwoluzky
Author-Email: akriwoluzky@diw.de
Author-Name: Gernot J. Müller
Author-Email: gernot.mueller@uni-tuebingen.de
Author-Name: Fabian Seyrich
Author-Email:  fabian.seyrich@gmail.com
Classification-JEL:  D31, E64, F45, Q41
Keywords: Energy crisis, Subsidies, Transfers, HANK2, monetary union, spillovers, heterogeneity, inequality, households

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.


Note: 
Length: 51
Creation-Date: 2023-11
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp474
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2023_474