Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296072 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 10983
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs – larger than CUS-FTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called "Swiss formula" that governed Tokyo Round tariff liberalization to provide the first evidence of its effects on imports and inequality. Instrumented tariff reductions explain 17% of the within-industry rise in income inequality between skilled and unskilled workers between 1979 and 1988. This effect is largest in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change. We also show that tariff liberalization in upstream industries produced a shift away from labor more broadly and towards intermediate inputs. Finally, we show that policymakers dampened the observed impact of tariffs on inequality by assigning smaller tariff reductions to industries more reliant on low-skilled labor.
Subjects: 
tariffs
Tokyo Round
Swiss formula
inequality
skill biased technological change
JEL: 
F13
F14
F66
Document Type: 
Working Paper
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