War in Ukraine: How to finance higher fiscal spending? through taxes or public debt?
Report published by the Peterson Institute for International Economics analyzing the economic effects of the war in Europe and the responses from the perspective of fiscal and monetary policy in the different EU countries in the form of direct aid, tax cuts on energy prices, subsidies... The report analyses what would be the best way to finance this increase in public spending, opting for public debt at a time when uncertainty can take its toll on domestic demand and there is substantial room to run temporary larger deficits if needed.
- Temporary reduction of taxes on energy consumption: This measure has been the most widespread to date, and for example has led to reductions from 15 cents per litre of gasoline in France to 30 cents in Germany.
- Direct grants: Cash transfers of a fixed amount to individuals or companies to deal with the effects of inflation and war. They can be universal regardless of their consumption of food, fuel or gas, or more specific aimed at the most vulnerable and affected by price increases.
- Price regulations: For example, the plan of Spain and Portugal proposing a method to decouple gas from the calculation of the electricity price, or France requesting the country's main electricity company to limit the increase in the bill to 4% in 2022. According to the authors, these are not efficient measures in the long term, but they do protect the welfare state.