On the Distributional Effects of International Tariffs

61 Pages Posted: 8 Jul 2020 Last revised: 14 Feb 2023

See all articles by Daniel Carroll

Daniel Carroll

Federal Reserve Bank of Cleveland

Sewon Hur

Federal Reserve Bank of Dallas

Multiple version iconThere are 2 versions of this paper

Date Written: February 13, 2023

Abstract

We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the US and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce distortionary taxes on consumption, labor, and capital income, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth households, while only wealthy households experience a welfare gain.

Keywords: tariffs, inequality, consumption, welfare, taxation

JEL Classification: E21, F10, F62, H21

Suggested Citation

Carroll, Daniel and Hur, Sewon, On the Distributional Effects of International Tariffs (February 13, 2023). FRB of Cleveland Working Paper No. 20-18R2, Available at SSRN: https://ssrn.com/abstract=3646322

Daniel Carroll (Contact Author)

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Sewon Hur

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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