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US General Tariff and Capital Tax Effects

Author

Listed:
  • Rod Tyers

    (University of Western Australia Business School, Perth, Australia)

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.

Suggested Citation

  • Rod Tyers, 2025. "US General Tariff and Capital Tax Effects," Economics Discussion / Working Papers 25-02, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:25-02
    Note: MD5 = dab0822000868d4965f26911b19efde9
    as

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    File URL: https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2025/DP%2025.02_Tyers.pdf
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    References listed on IDEAS

    as
    1. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-1032, December.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
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    Keywords

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    JEL classification:

    • F3 - International Economics - - International Finance
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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