Energy Security:

Analysis of Studies on Economic Consequences of an Oil Import Tariff

RCED-89-70BR: Published: Jun 16, 1989. Publicly Released: Jun 16, 1989.

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Pursuant to a congressional request, GAO compared the assumptions and statistical methods of separate studies by the Department of Energy (DOE) and the Harvard University Energy and Environmental Policy Center to determine why the studies reached different conclusions on the economic consequences of a tariff on imported oil.

GAO found that: (1) both studies calculated tariff costs and benefits using economic measures involving welfare losses, the gross national product (GNP), producing countries' tariff shares, and national security; (2) the DOE study, which assumed that the federal government would not change its fiscal or monetary policies to alleviate the recessionary effect of imposing a $10-per-barrel oil import tariff, estimated a net loss of $154 billion to the economy over an 8-year period; (3) the Center's study, which assumed that the government would adopt fiscal and monetary accommodation policies, estimated that the economy would adjust to higher oil prices within 1 year, with a net effect to the economy ranging from a loss of $1 billion to a gain of $10 billion over an 8-year period; (4) both studies' estimates of macroeconomic costs were limited by statistical weaknesses, failure to estimate potential trade losses, and failure to address the impact of deficit reduction on GNP losses; (5) the DOE study's conclusions about the duration and magnitude of GNP losses were within the range of estimates reported in other studies which did not use accommodation policies; and (6) the Center's estimates of GNP losses were smaller than those of other studies which made similar assumptions about accommodation policies.

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