In this paper, we model a fossil fuel embargo as a temporary quantity constraint on fossil fuel imports and we compare the impact with the effect of a fossil fuel price shock. We show that while both shocks have similar responses of output and inflation, they differ with respect to other macroeconomic components, such as consumption, exports and the trade balance. In particular, an embargo has more adverse effects on the functional income distribution. Our findings are relevant for policymakers when determining the most effective stabilization policy. We compare different monetary and fiscal stabilization policies, such as different interest rate policies, energy tax reduction, transfer to liquidity-constrained households, and a value-added tax cut. We find that fiscal policy can complement monetary policy, by targeting distributional objectives. There is no conflict with monetary policy in the case of energy taxes and VAT, while in the case of transfers output and consumption stabilization of low-income households is accompanied by slightly higher inflation. We find that fiscal policies are less effective in stabilizing GDP in the case of an embargo shock. In particular, a reduction of the energy tax is completely ineffective when there is an embargo. In contrast, in the event of a fossil fuel price shock, an energy tax reduction is effective because it counteracts the price increase and allows companies to respond according to their energy demands.

We construct a new narrative instrument for government investment shocks from official records in Germany. Using structural vector autoregressions, we document a significant crowding-in of private demand and an output multiplier of 2 on impact, which increases to 3 after five years. Then, we use a New Keynesian dynamic stochastic general equilibrium model matched to the empirical responses to decompose the multiplier into two channels. In the short run, public investment grants reduce private investment costs. In the long run, public investment increases the production capacity of the economy. The estimated output elasticity of public capital is 0.06.

The system of business income taxation consists of two instruments, namely a statutory tax rate and a depreciation allowance on investment. We will show in this paper that by acting on both instruments simultaneously it is possible to achieve both a growth and a fiscal net revenue target even in cases when a trade-off prevails when each instrument is used individually. As will be shown in the paper, depreciation allowances have a more favorable trade-off between growth and net revenue in the long run compared to statutory business income tax rates. Thus, by rising depreciation allowances and the statutory tax rate at the same time, it is possible to both increase growth and fiscal space. In a model simulation calibrated to the German economy and tax system, an increase of the tax depreciation rate for all investments from 10\% to 25\% leads to a more than 2 percent GDP increase and more than 6 percent higher private investments in total. Whereas GDP and investment rise steadily over time, the government budget becomes negative in the short run. In the long run, the sign of the fiscal budget effect is determined by the indexation of government consumption to GDP. However, according to our findings, slight adjustments in the statutory business income tax rate could balance out these deficits and generate additional fiscal space.

This paper evaluates the temporary VAT reduction introduced by the German government over the 3Q2020:4Q2020 as a controversial part of the COVID-19 stimulus package. Critics argue that VAT reductions are ineffective because of limited pass-through to consumer prices and during lockdown. Advocates emphasize positive effects on durable goods and stress that a VAT reduction can partly substitute for a limited monetary policy response under the zero lower bound (ZLB). Thus, the VAT policy experiment of a sizable two-quarter VAT reduction allows studying the effects and transmissions channels of VAT measures.

We extend a dynamic stochastic equilibrium (DSGE) model to address a durable goods channel and a limited VAT pass-through and distinguish between sectors directly and indirectly affected by the lockdown. We trace lockdown and fiscal shocks and analyze the impact of the VAT reduction in conjunction with the lockdowns in 2020-2021 in Germany.

We use nonlinear solution techniques to solve the model in the presence of a ZLB, forced savings and a partial lockdown constraint. Although the lockdown restriction reduces the effectiveness of a temporary VAT reduction, we find a short-term multiplier of 1.8. However, the cumulative multiplier reduces to below 1 over the medium term due to a shift in durable goods consumption toward 2020. Thus, the temporary VAT reduction is an effective instrument for short-term stabilization during the partial lockdown, but fiscal costs appear in the medium term.

A European unemployment insurance scheme has gained increased attention as a new and ambitious common fiscal instrument which could be used for temporary cross-country transfers. Part of the national stabilizers composing unemployment insurance schemes would be transferred to the central level. Unemployed are then insured by both layers. When a country is hit by an asymmetric shock, it would receive positive net transfers from the central
fund in the form of reduced taxes and increased benefits, providing risk-sharing for the whole union.
We build a two-country DSGE model with supply, demand and labor market shocks in order to capture the recent national insurance system and the unemployment insurance union (UIU) design. The model is calibrated to the euro area core and periphery data and matches the empirically observed cyclicality of the net replacement rate, the wage and unemployment dynamics. This baseline scenario is then compared to a optimal unemployment insurance union with passive and active benefit policies.
For all underlying shocks, we find that the UIU reduces the fluctuation of consumption and  unemployment while it increases the fluctuation of the trade balance. In case of a positive domestic government spending shock the UIU reduces the negative crowding out effect on private consumption and investment. The model will be used to analyze the effects of national and supranational benefit policies on labour market patterns and welfare.

While the first two pillars of the European Banking Union have been implemented, a European deposit insurance scheme (EDIS) is still not in place. To facilitate its introduction, recent proposals argue in favor of a reinsurance scheme. In this paper, we use a regime-switching open-economy DSGE model with bank default and bank-government linkages to assess the relative efficiency of such a scheme.
We find that reinsurance by both a national fiscal backstop and EDIS is efficient in stabilizing the macro economy, even though welfare gains are slightly larger with EDIS and debt-to-GDP ratios rise under the fiscal reinsurance. We demonstrate that risk-weighted contributions to EDIS are welfare-beneficial for depositors and discuss trade-offs policy makers face during the implementation of EDIS. In a counterfactual exercise, we find that EDIS would have stabilized economic activity in Germany and the rest of the euro area just as well as a fiscal backing of insured deposits during the financial crisis. However, the debt-to-GDP ratio would have been lower with EDIS.