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Working Paper
02.14.2022 |
WP 20-18R
We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the US and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce labor and capital income taxes and increase transfers, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth and low-income workers, while only wealthy households experience a welfare gain.
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Working Paper
06.22.2020 |
WP 20-18
What are the distributional consequences of tariffs? We build a trade model with incomplete asset markets and households that are heterogeneous in their income, wealth, and labor skill. We increase tariffs by 5 percentage points and examine several budget-neutral fiscal policies for redistributing tariff revenue. Without redistribution, tariffs hurt all households, but higher tradables prices disproportionately harm the poor and the ensuing decline in the skill premium disproportionately harms the skilled. With redistribution, lowering the labor income tax leads to lower economic activity but higher average welfare relative to lowering the capital income tax; nevertheless, both policies reduce average welfare with retaliatory tariffs. Finally, when tariff revenue is rebated to households as lump-sum transfers, tariffs can be welfare improving even with full retaliation.
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Working Paper
06.16.2020 |
WP 19-03R
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
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Working Paper
09.23.2019 |
WP 19-06R2
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income households. Second, we build a trade model with nonhomothetic preferences—to generate the documented relationship between tradable expenditure shares, income, and wealth—and uninsurable earnings risk—to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution. In a numerical exercise, we permanently reduce trade costs so as to generate a rise in import share of GDP commensurate with that seen in the data from 2001 to 2014. We find that households in the lowest wealth decile experience welfare gains over the transition, measured by permanent consumption equivalents, that are 57 percent larger than those in the highest wealth decile.
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Working Paper
07.19.2019 |
WP 19-06R
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income households. Second, we build a trade model with nonhomothetic preferences—to generate the documented relationship between tradable expenditure shares, income, and wealth—and uninsurable earnings risk—to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution. In a numerical exercise, we permanently reduce trade costs so as to generate a rise in import share of GDP commensurate with that seen in the data from 2001 to 2014. We find that households in the lowest wealth decile experience welfare gains over the transition, measured by permanent consumption equivalents, that are 67 percent larger than those in the highest wealth decile.
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Working Paper
03.22.2019 |
WP 19-06
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods constitute a larger fraction of expenditures for poor households. Second, we build a trade model with nonhomothetic preferences—to generate the documented relationship between tradable expenditure shares, income, and wealth—and uninsurable earnings risk—to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution. In a numerical exercise, we permanently reduce trade costs so as to generate a rise in import share of GDP commensurate with that seen in the data from 2001 to 2014. We find that households in the lowest wealth decile experience welfare gains over the transition, measured by permanent consumption equivalents, that are 67 percent larger than those in the highest wealth decile.
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Working Paper
02.01.2019 |
WP 19-03
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
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Working Paper
09.28.2018 |
WP 18-12
We study how the co-movement of inflation and economic activity affects real interest rates and the likelihood of debt crises. First, we show that for advanced economies, periods with procyclical inflation are associated with lower real interest rates. Procyclical inflation implies that nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. However, such procyclicality also increases sovereign default risk when the economy deteriorates, since the government needs to make larger (real) payments. In order to evaluate both effects, we develop a model of sovereign default on domestic nominal debt with exogenous inflation risk and domestic risk-averse lenders. Countercyclical inflation is a substitute with default, while procyclical inflation is a complement with it, by increasing default incentives. In good times, when default is unlikely, procyclical inflation yields lower real rates. In bad times, as default becomes more material, procyclical inflation can magnify default risk and trigger an increase in real rates.