Modeling the Distribution of Tariff Revenue to Firms within a Partial Equilibrium Framework

In this paper, I expand upon the current partial equilibrium modeling literature by discussing how to incorporate the distribution of tariff revenue to firms into these models. Rather than assume all firms are identical, I model firms as having a continuum of heterogeneous productivities, so that model users can compute equilibrium results on the fraction of firms that enter or leave the market in any given counterfactual situation. I then solve the model under various counterfactual scenarios given theoretical parameter choices, and illustrate the ways in which modeling outcomes are sensitive to parameter values. While this paper’s simulations do not use any real-world data or correspond to any real-world countries, its calibration and estimation discussion takes into account current data limitations and practical challenges in solving the model.