Tuesday , October 24 2017
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“Who Will Pay for the Wall?”

Summary:
That’s the title of a new post written by me, on Econofact. Short answer to the question posed: not likely just the Mexicans… The Issue: Building a wall on the Mexican border –and having Mexico pay for it– has been a centerpiece of President Trump’s policies to control immigration. The costs of building the wall are uncertain, ranging from billion to billion. The Trump Administration has stated that one possible way to fund the wall is through a Destination Based Cash Flow Tax applied to U.S.-Mexico trade. There are questions about the amount of revenue that this tax could raise and, even more importantly, the wider consequences of this tax, not only for trade with Mexico but for trade with all countries. In the memo, I focused on the likelihood the DBCFT will do the trick. After taking into account elasticities and partial exchange rate adjustment, the Mexicans are unlikely to be paying fully. Capital controls via a transactions tax on remittances are unlikely to fully fund the wall (and what revenues are obtained are likely to at least partly come from Americans and legal immigrants). A tariff on Mexican imports would likely to be at least partly funded by American consumers and producers. More on carbon taxes, the fiduciary rule, aid to Sub-Saharan Africa, and charter schools, at EconoFact.

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That’s the title of a new post written by me, on Econofact. Short answer to the question posed: not likely just the Mexicans…

The Issue:

Building a wall on the Mexican border –and having Mexico pay for it– has been a centerpiece of President Trump’s policies to control immigration. The costs of building the wall are uncertain, ranging from $12 billion to $25 billion. The Trump Administration has stated that one possible way to fund the wall is through a Destination Based Cash Flow Tax applied to U.S.-Mexico trade. There are questions about the amount of revenue that this tax could raise and, even more importantly, the wider consequences of this tax, not only for trade with Mexico but for trade with all countries.

In the memo, I focused on the likelihood the DBCFT will do the trick. After taking into account elasticities and partial exchange rate adjustment, the Mexicans are unlikely to be paying fully.

Capital controls via a transactions tax on remittances are unlikely to fully fund the wall (and what revenues are obtained are likely to at least partly come from Americans and legal immigrants). A tariff on Mexican imports would likely to be at least partly funded by American consumers and producers.

More on carbon taxes, the fiduciary rule, aid to Sub-Saharan Africa, and charter schools, at EconoFact.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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