Sanctions and Taxes

Abstract

Are sanctions the most efficient means for convincing a nation to stop threatening security? We incorporate sanctions in a Robert Kohn trade model, likening security threats to global pollutants. Results suggest that Pigouvian taxes may contain the threats more efficiently than sanctions can. Econometric models of North Korea imply that comprehensive sanctions might reduce the number of arms tests. On the back of an envelope, we estimate that an income fall equivalent to about 7% of 2014 GDP might have eliminated all testing in 2015, controlling for the head of regime. But the result is not robust across all models.