Brexit and Irish Consumers. Quarterly Economic Commentary Special Article, Spring 2018.

Lawless, M. and Morgenroth, E. (2018) Brexit and Irish Consumers. Quarterly Economic Commentary Special Article, Spring 2018. [Working Paper]

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Abstract

Concerns about the impact of Brexit on the Irish economy have tended to focus on the challenges to exporting firms. However, as the UK is a significant source of imports into the Irish economy and there is considerable integration of the retail sectors in both countries, the imposition of tariffs or other increases in trading costs could pass through to increased prices for Irish consumers. This paper examines the contribution of UK imports to overall household expenditure in Ireland and their exposure to tariffs and other cost increases from possible restrictions on trade. Our approach generates an estimate of potential increases in the level of CPI of between 2 per cent and 3.1 per cent. In the estimated scenarios, these increases are the equivalent of between €892 (increase in non-tariff trade costs) and €1,360 (tariffs plus other trade cost increases) in the annual cost of its consumption basket for the average household. This assumes that there is no switching or changes in expenditure patterns in response to the cost increases so gives an upper bound to the cost increase effects. We also find that these effects are very unevenly distributed across households. Households with lower income levels would face considerably higher percentage increases as they tend to consume a higher share of products that would be most affected by increases in tariffs and trade costs.

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