Fuel poverty and financial distress.

Governments and advocacy groups have drawn attention to the precarious position of those members of society who are unable to attain an adequate level of energy services, i.e. the fuel poor. Concerns have also arisen about the ability of fuel poor individuals to adapt to the hardship recently brought about by the COVID-19 pandemic. This paper contributes to the literature by exploring empirically the link between fuel poverty and financial distress prior to and during the first wave the COVID-19 pandemic. The analysis is based on the most recent longitudinal, nationally representative survey of the United Kingdom, Understanding Society (UKHLS, Wave 10, January 2018-February 2020). After correcting for the effects of potential endogeneity in the variables of interest, our results identify a statistically robust relationship between fuel poverty indicators and self-reported measures of current financial distress, with stronger effects for subjective indicators. The fuel poverty indicators however exert only a limited influence on an individual's expectation of their future financial situation. Our analysis of the first wave of the COVID-19 pandemic also confirms that fuel poverty contributed to financial distress. Our main findings are robust to a suite of specification and sensitivity checks. Our results lead to recommend assessing measures which target fuel poverty on the basis of their potential indirect effect on financial distress.

Living with Reduced Income: An Analysis of Household Financial Vulnerability Under COVID-19.

The COVID-19 crisis has led to substantial reductions in earnings. We propose a new measure of financial vulnerability, computable through survey data, to determine whether households can withstand a certain income shock for a defined period of time. Using data from the ECB Household Finance and Consumption Survey (HFCS) we analyse financial vulnerability in seven EU countries. We find that, out of the 243 million individuals considered, 47 million are vulnerable to a three month long income shock (the average length of the first wave COVID-19 lockdown), i.e., they cannot afford food and housing expenses for three months without privately earned income. Differences across countries are stark. Individuals born outside the EU are especially likely to be vulnerable. Being younger, a single parent, and a woman are also statistically significant risk factors. Through a tax-benefit microsimulation exercise, we look into the COVID-19 employment protection benefits, the largest income support measure in the countries considered. Considering as our sample individuals in households where someone receives a salary, we derive household net income when employees are laid-off and awarded the COVID-19 employment protection benefits enacted. Our findings suggest that the employment protection schemes are extremely effective in reducing the number of vulnerable individuals. The relative importance of rent and mortgage suspensions, (likewise, widespread COVID-19 policies), in alleviating vulnerability, is highly country dependent.

Relaxing household liquidity constraints through social security.

More than a quarter of working-age households in the United States do not have sufficient savings to cover their expenditures after a month of unemployment. Recent proposals suggest giving workers early access to a small portion of their future Social Security benefits to finance their consumption during the COVID-19 pandemic. We empirically analyze their impact. Relying on data from the Survey of Consumer Finances, we build a measure of households' expected time to cash shortfall based on the incidence of COVID-induced unemployment. We show that access to 1% of future benefits allows 75% of households to maintain their current consumption for three months in case of unemployment. We then compare the efficacy of access to Social Security benefits to already legislated approaches, including early access to retirement accounts, stimulus relief checks, and expanded unemployment insurance.

Helicopter money in Europe: New evidence on the marginal propensity to consume across European households.

The recent spread of COVID-19 has led to the worst economic crisis since the 1930s. To boost demand after the crisis, direct monetary transfers to households are being discussed. Using novel microdata from the Eurosystem Household Finance and Consumption Survey (HFCS), we study how much of such a transfer households would actually spend. We do so by exploiting the unique opportunity that the new wave of the survey included an experimental question to calculate the marginal propensity to consume from hypothetical windfall gains. Our results show that households on average spend between about 33% (the Netherlands) and 57% (Lithuania) of such a transfer. In all countries, answers are clustered at spending nothing, spending 50% and spending everything. Marginal propensities to consume decrease with income but are not as clearly related to wealth.