Welfare Effects of TTIP in a DSGE Model

We analyze the welfare effects of the Transatlantic Trade and Investment Partnership (TTIP) between the United States (US) and the European Union (EU). Earlier TTIP studies analyze welfare effects in a framework where output and welfare coincide. We believe that the utility function of households, which depends on consumption and employment, is the best criterion for assessing TTIP. We measure the welfare effect of TTIP as the percentage of consumption that households would be willing to pay for TTIP in order to remain as well off with it as without it. The welfare effects of TTIP, which eliminates tariffs and cuts non-tariff measures, are always positive for the US and the EU. The reason is that the welfare gain of higher consumption more than offsets the welfare loss of a change in employment. The policy implication is that the US and the EU should continue the negotiations for the TTIP agreement.Peer reviewe