The temporary money transfers specifically aimed at the most vulnerable households constitute, according to the International Monetary Fund (IMF), the most effective and cheapest way to cushion the blow of rising living costs in times of crisis. On the contrary, policies focused on limiting prices, such as generalized subsidies, "are much less efficient" and generate "significantly greater" fiscal burdens.
"Generalized price containment measures are a costly and inefficient way to protect households during cost of living crises," notes the Washington-based organization in the second chapter of its report "World Economic Outlook." The IMF explains that this type of aid can alleviate, in the short term, pressures on monetary policy by containing an excessive rise in inflation and curbing second-round effects, but at the cost of a high budgetary effort.
The Fund's study also highlights that a large part of the benefits of these price control measures ends up concentrating in households with higher incomes. Thus, for every euro invested in limiting the prices of electricity, gasoline, and natural gas, households with fewer resources received less than 20 cents, while, in the specific case of gasoline, the highest income quintile received approximately 40 cents for every euro spent.
In this way, depending on the instrument used, the type of disturbance, and the economic context, achieving a similar level of protection for vulnerable households through generalized interventions on prices may require "between 3 and 22 times more fiscal resources than targeted transfers," emphasizes the IMF. The organization insists that this type of selective support, which maintains the signals sent by prices, offers adequate coverage at a cost much lower than that of broad subsidy-based alternatives.
In this line, the report argues that, for low-income households, the immediate welfare gains derived from price reductions "generally do not compensate for the medium-term costs associated with higher public debt and the consequent fiscal adjustment."
In its conclusions, the institution indicates that, although general price interventions and non-targeted transfers provide some relief to vulnerable households, "they do so at a substantially higher fiscal cost than well-targeted income transfers" and warns that subsidies to producers "are particularly inefficient," as part of the benefit ends up escaping abroad.
In any case, the IMF emphasizes that interventions must be strictly temporary and backed by clear and well-communicated exit clauses.
At the same time, in a global environment more exposed to crisis episodes, the Fund increasingly considers it essential to strengthen the fiscal infrastructure necessary to provide specific aid. It highlights that having more robust social protection systems allows for improving the effectiveness of responses to crises, reducing dependence on costly and poorly targeted emergency measures, and preserving the fiscal space essential to address future episodes of instability.