The Macroeconomy After Tariffs

Davide Furceri, Swarnali A Hannan, Jonathan Ostry and Andrew Rose

The World Bank Economic Review, 2022, vol. 36, issue 2, 361-381

Abstract: What does the macroeconomy look like in the aftermath of tariff changes? This study estimates impulse response functions from local projections using a panel of annual data that spans 151 countries from 1963 to 2014. Tariff increases are associated with persistent, economically and statistically significant declines in domestic output and productivity, as well as higher unemployment and inequality, real exchange rate appreciation, and insignificant changes to the trade balance. Output and productivity impacts are magnified when tariffs rise during expansions and when they are imposed by more advanced or smaller (as opposed to developing or larger) economies; effects are asymmetric, being larger when tariffs go up than when they fall. While firmly establishing causality is always a challenge, the results are robust to a large number of perturbations to the baseline methodology, and they hold using both macroeconomic and industry-level data.

Keywords: tariffs; output; productivity; unemployment; inequality; exchange rate; trade balance (search for similar items in EconPapers)
Date: 2022
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