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"A good man out of a good treasure bringeth forth good things, and an evil man out of an evil treasure bringeth forth evil things." Matthew 12:35

Tuesday, April 25, 2017

The Arithmetic of Border Adjustment

Just in time for the apparent death of the destination-based cash flow tax, I'm publishing my detailed notes on the step-by-step accounting math of border adjustment and the dollar. Now to be honest, this paper was partially just a self-exercise in practicing LaTeX and R Markdown. But more importantly, I've been frustrated that there isn't a single document with a detailed walk-through of why, for example, economic theory predicts a 20% DBCFT leads to a 25% dollar appreciation, why this predicted response is by the real and not nominal exchange rate, and why theory concludes a DBCFT is trade neutral. I hope that this paper serves that purpose, and that the next time Congress has a crazy fling with the idea of border-adjusted taxation it can help clarify the ensuing debate.

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