Are Capital Goods Tariffs Different?

May 22, 2020

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Format: Chicago

Sergii Meleshchuk, and Yannick Timmer. Are Capital Goods Tariffs Different?, (USA: International Monetary Fund, 2020) accessed November 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

In this paper we demonstrate the importance of distinguishing capital goods tariffs from other tariffs. Using exposure to a quasi-natural experiment induced by a trade reform in Colombia, we find that firms that have been more exposed to a reduction in intermediate and consumption input or output tariffs do not significantly increase their investment rates. However, firms’ investment rate increase strongly in response to a reduction in capital goods input tariffs. Firms do not substitute capital with labor, but instead also increase employment, especially for production workers. Reduction in other tariff rates do not increase investment and employment. Our results suggest that a reduction in the relative price of capital goods can significantly boost investment and employment and does not seem to lead to a decline in the labor share.

Subject: Economic sectors, Employment, Imports, International trade, Labor, Manufacturing, Revenue administration, Tariffs, Taxes, Trade facilitation

Keywords: Capital Goods, Capital goods tariff, Colombia, Employment, Imports, Input tariff, Investment, Investment rate, Manufacturing, Output tariff, Price of Capital, Tariff rate, Tariffs, Trade facilitation, Trade reform, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/061
Stock No:

WPIEA2020061
ISBN:

9781513545271
ISSN:

1018-5941

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