US General Tariff and Capital Tax Effects

Rod Tyers
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Rod Tyers: University of Western Australia Business School, Perth, Australia, http://www.web.uwa.edu.au/person/rod.tyers

No 25-02, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Motivation is offered for the scenario in which a large country imposing a general tariff, notwithstanding gains toward fiscal balance, suffers a contraction in output and employment, with output and net welfare effects that depend on monetary policy and are generally larger than the associated undergraduate dead-weight efficiency losses. A global model is then used to simulate the effects of such a tariff, demonstrating that, while trading partners would be hurt by the tariff, the US economy would also suffer a contraction. The size of the net welfare effects is shown to depend importantly on targets of monetary policy and their associated inflation rates. Nonetheless, the tariff effects are also shown to be dwarfed by those of a proposed business tax break, which redirects investment to the US and would yield larger domestic gains and foreign punitive losses.

Keywords: tariffs; tax breaks; monetary policy (search for similar items in EconPapers)
JEL-codes: E5 F3 (search for similar items in EconPapers)
Pages: 17
Date: 2025
Note: MD5 = dab0822000868d4965f26911b19efde9
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