No. 279 - The impact of lower oil prices on energy expenditure and economic activity

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by Ivan Faiella and Alessandro MistrettaJune 2015

The recent drop in oil prices will lower Italy’s energy bill. Due to the progressive marginalization of oil, both as an energy source and as a benchmark for energy prices, households and firms will reap the benefits of this reduction largely through the lower cost of petroleum products; for electricity and gas, the effects will be negligible. Using simulation techniques and survey microdata it can be estimated that the effects will differ for households and firms, with the former expected to benefit from liquid fuel savings amounting to €2.1 billion per year (€80 per family), €1.8 billion of which will be used to increase consumer spending. These additional resources will not reach the one third of households that do not purchase gasoline or diesel. Using some recent estimates of manufacturing firms’ energy costs we also estimate that the decline in the prices of oil products will increase turnover by €650 million and investment expenditure by about €27 million.

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