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Full-Text Articles in Social and Behavioral Sciences
Could Tariffs Be Pro-Cyclical?, James Lake, Maia K. Linask
Could Tariffs Be Pro-Cyclical?, James Lake, Maia K. Linask
Economics Faculty Publications
Conventional wisdom says that tariffs are counter-cyclical. We analyze the relationship between business cycles and applied MFN tariffs using a disaggregated product-level panel dataset covering 72 countries between 2000 and 2011. Strikingly, and counter to conventional wisdom, we find that tariffs are pro-cyclical. Further investigation reveals that this pro-cyclicality is driven by the tariff setting behavior of developing countries; tariffs are acyclical in developed countries. We present evidence that pro-cyclical market power drives the pro-cyclicality of tariffs in developing countries, providing further evidence of the importance of terms of trade motivations in explaining trade policy.
Time-Consistent Optimal Fiscal Policy Over The Business Cycle, Zhigang Feng
Time-Consistent Optimal Fiscal Policy Over The Business Cycle, Zhigang Feng
Economics Faculty Publications
This paper examines a dynamic stochastic economy with a benevolent government that cannot commit to its future policies. I consider equilibria that are timeconsistent and allow for history-dependent strategies. A new numerical algorithm is developed to solve for the set of equilibrium payoffs. For a baseline economy calibrated to the U.S. economy, the capital income tax with the highest social welfare is slightly procyclical, while the labor income tax is countercyclical. Compared with the data, this equilibrium provides a better account of the cyclical properties of U.S. tax policy than other solutions that abstract from history dependence. The welfare cost …