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- Title
Adapting fiscal strategies to energy and food price shocks in Portugal.
- Authors
Escalante, Luis; Mamboundou, Pierre
- Abstract
Economies that are dependent on imported inputs are vulnerable to external shocks affecting international prices. Although the effects of these shocks have been widely documented in the literature, strategies to effectively mitigate them remain underexplored. Using a recursive-dynamic computable general equilibrium (CGE) model, we examined the impact of global energy and food price shocks on the Portuguese economy. Moreover, we evaluated fiscal policies aimed at mitigating these impacts by boosting consumption through wage increases, cash transfers, consumption subsidies, and revitalizing economic activities with reduction in production tax. The findings suggest that reduction in production tax is the best mitigation option, as it directly improves sectoral competitiveness, promotes employment, and stimulates consumption. In contrast, a consumption-focused fiscal strategy is costlier and exclusively enhances household purchasing power. Notwithstanding, raising wages inadvertently worsens persistent inflation due to increased production costs and demand. Exploring various financing options is necessary to assess policy effectiveness and consistency over time.
- Subjects
PORTUGAL; ENERGY industries; CALORIC content of foods; WAGE increases; PRICES; PURCHASING power
- Publication
Economic Analysis & Policy, 2024, Vol 82, p651
- ISSN
0313-5926
- Publication type
Article
- DOI
10.1016/j.eap.2024.04.005