Working Paper: NBER ID: w25402
Authors: Davide Furceri; Swarnali A. Hannan; Jonathan D. Ostry; Andrew K. Rose
Abstract: We study the macroeconomic consequences of tariffs. We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014. We find that tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance. The effects on output and productivity tend to be magnified when tariffs rise during expansions, for advanced economies, and when tariffs go up, not down. Our results are robust to a large number of perturbations to our methodology, and we complement our analysis with industry-level data.
Keywords: tariffs; macroeconomic policy; trade balance; inequality; productivity
JEL Codes: F13; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tariff increases (F69) | Declines in domestic output (F44) |
| Tariff increases (F69) | Declines in productivity (O49) |
| Tariff increases (F69) | Higher unemployment (J64) |
| Tariff increases (F69) | Greater inequality (D31) |
| Tariff increases (F69) | Real exchange rate appreciation (F31) |
| Real exchange rate appreciation (F31) | Minimal effect on trade balance (F69) |