Journal
ECONOMIC POLICY
Volume 32, Issue 92, Pages 651-705Publisher
OXFORD UNIV PRESS
DOI: 10.1093/epolic/eix015
Keywords
trade; Brexit; general equilibrium
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Funding
- ESRC through the Centre for Economic Performance
- Economic and Social Research Council [ES/M010341/1] Funding Source: researchfish
- ESRC [ES/M010341/1] Funding Source: UKRI
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Sampson and John Van Reenen?> This paper estimates the welfare effects of Brexit in the medium to long run, focusing on trade and fiscal transfers. We use a standard quantitative general equilibrium trade model with many countries and sectors and trade in intermediates. We simulate a range of counterfactuals reflecting alternative options for European Union (EU)-United Kingdom (UK) relations following Brexit. Welfare losses for the average UK household are 1.3% if the UK remains in the EU's Single Market like Norway (a 'soft Brexit'). Losses rise to 2.7% if the UK trades with the EU under World Trade Organization rules (a 'hard Brexit'). A reduced-form approach that captures the dynamic effects of Brexit on productivity more than triples these losses and implies a decline in average income per capita of between 6.3% and 9.4%, partly via falls in foreign investment. The negative effects of Brexit are widely shared across the entire income distribution and are unlikely to be offset from new trade deals.
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