Energy subsidy reforms and the impacts on firms: Transmission channels and response measures

While the adverse effects of energy price increases following reforms are increasingly well understood for households, the existing literature has largely ignored the effect of subsidy reform on firms. This paper argues that this is a gap in the evidence base that must be addressed, in order to design and deliver reforms more effectively. In particular, attention must be paid to all the transmission channels for price shocks, as well as the available response measures. Only a full evaluation of these aspects can enable policy makers to make an informed assessment of the likely consequences of subsidy removal on economic activity and competitiveness. This paper outlines the most important transmission channels for energy price shocks and the response measures used by firms.

By: Jun Rentschler , Martin Kornejew

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