A nice recent personal example: I wrote a substack on the Tariffs Balance Income Taxes example, with a numerical example but no math. My numerical example taught me that I had to restrict the idea to tariffs on labor-intensive goods. I asked for comment. Ivan Werning said it was basically in Mirrlees and Diamond, or, for trade, in a 1986…
A nice recent personal example: I wrote a substack on the Tariffs Balance Income Taxes example, with a numerical example but no math. My numerical example taught me that I had to restrict the idea to tariffs on labor-intensive goods. I asked for comment. Ivan Werning said it was basically in Mirrlees and Diamond, or, for trade, in a 1986 Dixit and Norman article. I asked Dixit, and he and Werning have been having a big email discussion, because Werning has also written on this. I haven't had time to understand them, but Dixit did convince me my idea was flawed because the only reason a tariff helped in my example was that I had the economy start off with suboptimal income taxes, taxing labor but not capital. Thus, if tariffs were good, that's only because we've set existing taxes wrong, so we might better be direct and fix them and not bother with tariffs.
A nice recent personal example: I wrote a substack on the Tariffs Balance Income Taxes example, with a numerical example but no math. My numerical example taught me that I had to restrict the idea to tariffs on labor-intensive goods. I asked for comment. Ivan Werning said it was basically in Mirrlees and Diamond, or, for trade, in a 1986 Dixit and Norman article. I asked Dixit, and he and Werning have been having a big email discussion, because Werning has also written on this. I haven't had time to understand them, but Dixit did convince me my idea was flawed because the only reason a tariff helped in my example was that I had the economy start off with suboptimal income taxes, taxing labor but not capital. Thus, if tariffs were good, that's only because we've set existing taxes wrong, so we might better be direct and fix them and not bother with tariffs.
The Substack is at https://ericrasmusen.substack.com/p/ready-to-gocan-tariffs-be-justified . I'll be updating it more as I get time to udnerstand Dixit and Werning.