Working Paper: NBER ID: w1869
Authors: Charles Engel; Kenneth Kletzer
Abstract: We investigate the effects of higher tariffs on the current account.Tariffs may increase or decrease investment depending on the capital intensity of the sector protected. We find that ther esponse of saving to tariffs issensitive to the modelling of saving behavior. In a model in which Consumers' discount rate varies endogenously (in the Uzawa preference form), saving fallswith higher tariffs. This result may, however, be reversed in the Blanchard-Yaarj type model in which consumers have uncertain lifetimes. We find that in both models the response of saving depends on a production distortion effect which changes steady-state income and an effect on steady-state expenditures.
Keywords: Tariffs; Current Account; Saving; Investment
JEL Codes: F32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tariffs (F13) | saving (E21) |
| tariffs (F13) | current account balance (F32) |
| production distortion effect (H31) | saving (E21) |
| expenditure effect (D12) | saving (E21) |