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Estimating the Welfare Cost of Tariffs: The Roles of Leisure and Domestic Taxes

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  • Rousslang, Donald J
  • Tokarick, Stephen P

Abstract

In this paper, the authors use an applied general equilibrium model to estimate the welfare cost of a uniform U.S. tariff. The model accounts for the work-leisure distortion imposed by domestic taxes and allows leisure and nontraded goods to be net complements in demand, as is suggested by empirical evidence. Applied trade models generally fail to account for the work-leisure distortion because they omit leisure or domestic taxes and they use utility functions such as Cobb-Douglas, Stone-Geary, or CES that preclude net complementarity in demand. The authors demonstrate that either failing can lead to large errors in the welfare estimates for tariffs. Copyright 1995 by Royal Economic Society.

Suggested Citation

  • Rousslang, Donald J & Tokarick, Stephen P, 1995. "Estimating the Welfare Cost of Tariffs: The Roles of Leisure and Domestic Taxes," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 83-97, January.
  • Handle: RePEc:oup:oxecpp:v:47:y:1995:i:1:p:83-97
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    Cited by:

    1. Douglas A. Irwin, 2007. "Trade Restrictiveness and Deadweight Losses from U.S. Tariffs, 1859-1961," NBER Working Papers 13450, National Bureau of Economic Research, Inc.
    2. Sergey MALAKHOV, 2014. "Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?," Expert Journal of Economics, Sprint Investify, vol. 2(2), pages 80-84.

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