A Macroeconomic Perspective on Border Taxes

The debate on corporate tax reform in the United States has included arguments for a border-adjustment tax that would effectively raise the tax on imported inputs and provide a subsidy to exports. This policy is equivalent to other uniform border taxes, such as a combined import tariff and export subsidy, and a uniform value-added tax and payroll subsidy. In this paper, I argue that, contrary to popular arguments, such taxes are not neutral in either the short run or the long run, and they have significant consequences for international trade.