Tariffs, Employment and the Current Account: Real Wage Resistance and the Macroeconomics of Protectionism / Sweder van Wijnbergen.

Format:

Book

Author/Creator:

van Wijnbergen, Sweder.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2261.

NBER working paper series no. w2261

Language:

English

Subjects (All):

Tariff.

Employment (Economic theory).

Protectionism.

Commerce.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Tariffs, Employment and the Current Account

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1987.

Cambridge, Massachusetts : National Bureau of Economic Research, 1987.

Summary:

Using a standard complete specialization model of a small open economy within a rigorous intertemporal optimization framework with contract- based wage rigidity, we show that permanent tariffs may lead to a current account deterioration and a fall in employment, contradicting most of the literature of macro-economic effects of import tariffs. I show that this will always be the case if the economy is small enough. The crucial factor in this complete reversal of standard results is the impact of tariffs on domestic real product wages via wage indexation. Temporary tariffs will have less of a negative impact on the CA or potentially even a positive impact, because they increase the consumption rate of interest (the terms at which future consumption can be traded for current consumption) and so increase private savings. Extensions towards incorporating a more general production structure, investment and the use of tariff revenues to provide wage subsidies are presented.

Notes:

Print version record

May 1987.