Tariffs as Fiscal Policy / Kimberly A. Clausing, Maurice Obstfeld.

Format:

Book

Author/Creator:

Clausing, Kimberly A.

Contributor:

Obstfeld, Maurice.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w34192.

NBER working paper series no. w34192

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2025.

Summary:

The year 2025 brought a remarkable shift in the role of tariffs in the US economy, as the Trump administration simultaneously escalated the use of broad tariffs and ensured that Congress enacted large income tax cuts. This fiscal switch has important implications for the US tax system. While maintaining tariff rates at summer 2025 levels would generate large government revenues, such broad tariffs have significant downsides: Efficiency losses would approach one-third of revenues raised, the tax system would be less progressive, and there would be serious tax administration concerns. The fiscal shift also has significant macroeconomic implications, although probably not the intended ones. Broad tariffs generate a large negative supply shock, simultaneously raising prices and reducing macroeconomic activity.

Notes:

October 2025.

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