Paola De Agostini - The distributional effects of energy price caps

• Presenting author: Paola De Agostini (European Commission, JRC)

• Authors: Antonio Amores, Michael Christl, Silvia De Poli, Sofia Maier

• Session: B02D - Energy - Tuesday 11:00-12:30 - Erika-Weinzierl Hall

This paper estimates the expected distributional and fiscal impact of price caps policies introduced in 2023 for three Western European countries, namely Austria, Germany, and the Netherlands. It estimates their cost-effectiveness in containing the price increases as well as their potential cushioning effects of inequality-increasing. This paper presents an ex-ante assessment of how price caps will partially offset the increase in consumer prices in 2023. Our approach involves several steps: first, we forecast the expected increase in consumer prices by goods category using information about future prices for the energy components. Second, following a standard compensating variation welfare approach, we estimate the additional expenditures required to maintain the same level of goods and services purchased in 2022 given the price increases. Third, we evaluate the impact of the price caps on household welfare losses and the prevalence of energy poverty using the EUROMOD tax-benefit microsimulation model for the EU, and its Indirect Tax Tool extension. Our estimates show that the price cap policy partly absorbs the negative redistributive consequences of the inflationary shock. However, the impact of these price caps varies across countries. However, poorer households are still the main losers from the inflation shock and price caps are far from enough to offset their welfare losses. To better support those most affected by this crisis, more targeted policies may proof to be more efficient.