Macroeconomic Effects of Fiscal Policy Under an Energy Supply Shock

49 Pages Posted: 29 Feb 2024

See all articles by Johan Gustafsson

Johan Gustafsson

Umeå University

Xiaofei MA

ESSCA School of Management

Junior Maih

Norges Bank

Mattias Vesterberg

Umeå University - Centre for Environmental and Resource Economics

Abstract

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 low-income 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.

Keywords: energy price, investment subsidy, energy voucher

Suggested Citation

Gustafsson, Johan and MA, Xiaofei and Maih, Junior and Vesterberg, Mattias, Macroeconomic Effects of Fiscal Policy Under an Energy Supply Shock. Available at SSRN: https://ssrn.com/abstract=4743909 or http://dx.doi.org/10.2139/ssrn.4743909

Johan Gustafsson

Umeå University ( email )

Samhallsvetarhuset, Plan 2
Umea University
Umeå, SE 901 87
Sweden

Xiaofei MA (Contact Author)

ESSCA School of Management ( email )

55 Quai Alphonse le Gallo
Boulogne-Billancourt, 92513
France

Junior Maih

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Mattias Vesterberg

Umeå University - Centre for Environmental and Resource Economics ( email )

Umeå, S-901 87
Sweden

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