The paper examines a simple model in which exogenous political risk creates uncertainty about tariffs. The model … predicts a relation between consumption and tariffs that differs radically from that implied by models without asset markets or … political risk. Given the probability distribution of tariffs, domestic consumption and utility (ex post) are lower in states of …

The paper examines a simple model in which exogenous political risk creates uncertainty about tariffs. The model … predicts a relation between consumption and tariffs that differs radically from that implied by models without asset markets or … political risk. Given the probability distribution of tariffs, domestic consumption and utility (ex post) are lower in states of …

non-cooperative policies within a single framework. First, we compare the elasticity of trade flows to import tariffs and … in import tariffs by 1 percentage point reduces imports by around 1.4 percent. Hence the two instruments are not …