How can a country impose the most severe economic cost on a trading partner at the least cost to itself? I show that trade taxes as sanctions target the same goods as trade taxes as terms-of-trade manipulation. This observation has several useful implications for the design of sanctions.
We consider the under-studied second-order condition of a standard non-linear income taxation problem, using it to formulate a welfare-neutral test for efficient redistribution. Under our estimates of heterogeneity in taxable income elasticities, the condition fails, implying there is a "free lunch" through tax reform.
How does the rich web of economic relationships affect the impact of fiscal policy and its optimal targeting? We find that the structure of supply chain, regional, employer-employee, and consumption linkages determine the distributional effects of fiscal policy, but play no role in its aggregate effects. MPC-targeting is therefore maximally expansionary.
Works in progress
Non-Substitution: A Modern Treatment (available upon request)
When do factor prices determine goods prices and/or input-output structure? This short note provides a modern treatment of the non-substitution theorem first introduced by Samuelson (1949).
The Simple Economics of Optimal Sanctions: The Case of EU-Russia Energy Trade (with Kai Menzel and Jan Schmitz) April 2022
We study trade sanctions in a simple framework that accounts for an EU-Russian import tariff's effects on both country's terms of trade with the rest of the world. In this context, we provide a test for when tariffs on Russian energy imports can simultaneously damage the Russian economy and increase EU welfare.
What economic tradeoffs should inform the design of trade sanctions? This paper—intended as a guide for policymakers with some background in economics—uses supply and demand diagrams to illustrate seven simple lessons. [Press: VoxEU]