The welfare effects of price shocks and household relief packages: evidence from an energy crisis

Résumé fourni par la source

Aggregate price shocks can lead to significant inequality in losses both across and within income groups.This creates a trade-off between supporting households through subsidies, which target those most affected but introduce inefficiencies, and transfers, which are less distortionary but harder to target precisely.We develop a framework to quantify this trade-off, using rich panel data on energy spending and income, alongside price and policy variation from the 2022-23 European Energy Crisis.We show that, in the absence of policy intervention, average household welfare losses would have been equivalent to 6% of income, with some households facing much larger losses.A combination of an energy price subsidy and universal transfers reduced both the mean and dispersion of household losses but incurred efficiency costs equivalent to 12% of the total funds spent on the relief package.Under a range of social preferences, bettertargeted transfers would have reduced the optimal subsidy rate, though not eliminated it entirely.

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