Estimating the Welfare Cost of Tariffs: The Roles of Leisure and Domestic Taxes
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.
Volume (Year): 47 (1995)
Issue (Month): 1 (January)
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