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Are Capital Goods Tariffs Different?
Author:
Sergii Meleshchuknull

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Mr. Yannick Timmer
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 061
Language:
English
Publication Date:
22 May 2020
DOI:
https://doi.org/10.5089/9781513545271.001
ISBN:
9781513545271
ISSN:
1018-5941
Pages:
35
Keywords:
WP; investment rate; input tariff; capital goods tariff; output tariff; tariff rate; Tariffs; Imports; Trade facilitation; Employment; Manufacturing; Investment; Capital Goods; Price of Capital; Trade reform; Colombia
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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In this paper we demonstrate the importance of distinguishing capital goods tariffs from other tariffs. Using exposure to a quasi-natural experiment induced by a trade reform in Colombia, we find that firms that have been more exposed to a reduction in intermediate and consumption input or output tariffs do not significantly increase their investment rates. However, firms’ investment rate increase strongly in response to a reduction in capital goods input tariffs. Firms do not substitute capital with labor, but instead also increase employment, especially for production workers. Reduction in other tariff rates do not increase investment and employment. Our results suggest that a reduction in the relative price of capital goods can significantly boost investment and employment and does not seem to lead to a decline in the labor share.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2020: Issue 061