Fiscal policy and energy price shocks

In this analysis, we examine the heterogeneous welfare effects of various crisis relief programs, financed either through distortionary taxes or public debt. To provide a quantitative evaluation of the 2022 energy crisis, we compare the performance of targeted and untargeted transfers and energy price subsidies while considering different financing schemes within a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to the German economy. Our results show that no single measure can resolve the underlying trade-offs. In terms of welfare, low-income and high- income households prefer different policies and financing schemes. Low-income households prefer debt-financed instruments, as these help them smooth consumption in response to the energy price shock. In contrast, high-income households strongly prefer tax-financed interventions. Our analysis highlights the importance of labor market effects and explicitly assessing welfare. • During a major energy price shock, key policy goals are in conflict. • No single policy dampens a recession, saves energy, and prevents energy poverty. • Tax vs. debt financing significantly impacts welfare. • Welfare evaluation is crucial; GDP effects don’t reflect energy savings or energy poverty.