Macroeconomic Consequences of Tariffs

By Davide Furceri, Swarnali A Hannan, Jonathan David Ostry, Andrew K. Rose

January 15, 2019

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Davide Furceri, Swarnali A Hannan, Jonathan David Ostry, and Andrew K. Rose Macroeconomic Consequences of Tariffs, (USA: International Monetary Fund, 2019) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study the macroeconomic consequences of tariffs. We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014. We find that tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance. The effects on output and productivity tend to be magnified when tariffs rise during expansions, for advanced economies, and when tariffs go up, not down. Our results are robust to a large number of perturbations to our methodology, and we complement our analysis with industry-level data.

Subject: Foreign exchange, International trade, Production, Productivity, Protectionism, Real exchange rates, Tariffs, Taxes, Trade balance

Keywords: Africa, Exchange rate, Global, Inequality, Input tariff, Output, Output tariff effect, Productivity, Protection, Protectionism, Real exchange rates, Sensitivity analysis, Tariff change, Tariff consequence, Tariff increase, Tariff rate, Tariffs, Trade balance, Trade balance., Unemployment, WP

Publication Details

Pages:

57
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/009
Stock No:

WPIEA2019009
ISBN:

9781484390061
ISSN:

1018-5941

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