Working Paper: NBER ID: w24702
Authors: Omar Barbiero; Emmanuel Farhi; Gita Gopinath; Oleg Itskhoki
Abstract: We analyze the dynamic macroeconomic effects of border adjustment taxes, both when they are a feature of corporate tax reform (C-BAT) and for the case of value added taxes (VAT). Our analysis arrives at the following main conclusions. First, C-BAT is unlikely to be neutral at the macroeconomic level, as the conditions required for neutrality are unrealistic. The basis for neutrality of VAT is even weaker. Second, in response to the introduction of an unanticipated permanent C-BAT of 20% in the U.S. the dollar appreciates strongly, by almost the size of the tax adjustment, U.S. exports and imports decline significantly, while the overall effect on output is small. Third, an equivalent change in VAT by contrast generates only a weak appreciation of the dollar, a small decline in imports and exports, but has a large negative effect on output. Lastly, border taxes increase government revenues in periods of trade deficit, however, given the net foreign asset position of the U.S., they result in a long-run loss of government revenues and an immediate net transfer to the rest of the world.
Keywords: border adjustment taxes; corporate tax reform; value-added taxes; macroeconomic effects
JEL Codes: E0; F0; H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CBAT (Y10) | dollar appreciation (F31) |
| dollar appreciation (F31) | U.S. exports decline (F14) |
| dollar appreciation (F31) | U.S. imports decline (F14) |
| VAT (H25) | dollar appreciation (F31) |
| VAT (H25) | U.S. exports decline (F14) |
| VAT (H25) | U.S. imports decline (F14) |
| VAT (H25) | output decline (E23) |
| border taxes (H29) | government revenues increase (H29) |
| border taxes (H29) | long-run loss of revenue (H27) |
| long-run loss of revenue (H27) | net transfer to the rest of the world (F29) |