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On the Distributional Effects of International Tariffs

Daniel Carroll and Sewon Hur ()

No 20-18R, Working Papers from Federal Reserve Bank of Cleveland

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 labor and capital income taxes and increase transfers, 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 and low-income workers, while only wealthy households experience a welfare gain.

Keywords: tariffs; consumption; taxation; inequality; welfare (search for similar items in EconPapers)
JEL-codes: E21 F10 F62 H21 (search for similar items in EconPapers)
Pages: 58
Date: 2020-06-22, Revised 2022-02-15
New Economics Papers: this item is included in nep-dge, nep-int and nep-mac
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DOI: 10.26509/frbc-wp-202018r

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