Economic Outlook, Interim Report September 2022: Paying the Price of War

Fiscal policy measures to mitigate inflation

The OECD analyses the fiscal measures packages implemented so far in almost all countries to face the cost-of-living raise. According to the institution, elevated uncertainty, slowing growth, strong inflationary pressures and the ongoing impact of the war in Ukraine on energy markets leave policymakers facing difficult choices. Public support measures should be timely, temporary and targeted to the most vulnerable and should be balance to ensure debt sustainability.

  • New fiscal measures have been implemented to shield households and companies from surging energy and food prices in almost all countries. However according to the OECD short term actions need to be balanced against the need to avoid a further persistent stimulus at a time of high inflation, which would require monetary policy to be tighter for longer than otherwise and raise debt service costs, and the need to ensure fiscal sustainability. The institution reminds the need of credible fiscal frameworks and the risk that the energy crisis could continue for several years.

  • Public support measures should ideally be well targeted on the most vulnerable, not outlast the period of exceptional price pressures and preserve incentives to reduce energy consumption.

  • Transfers to low-income households while high prices persist generally meet these criteria, though are more administratively complex and potentially less timely than less well-targeted measures as cap energy prices or reduce indirect taxes on energy. The latter measures also damp short-run inflationary pressures, but typically involve larger fiscal costs. Overall, the OECD considers that so far, fiscal measures to offset energy costs have been poorly targeted.

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