Technology-Hours Redux: Tax Changes and the Measurement of Technology Shocks

Morten Ravn and Karel Mertens

No 7962, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A number of empirical studies find that permanent technological improvements give rise to a temporary drop in hours worked. This finding seriously questions the technology-driven business cycle hypothesis. In this paper we argue that it is important to control for permanent changes in taxes, which invalidate the standard long run identifying assumptions for technology shocks and induce low frequency fluctuations in hours worked. Using the narrative data of Romer and Romer (2010), we find that tax shocks have significant long run effects on aggregate hours, output and labor productivity. We also find that, after controlling for tax shocks, permanent shocks to labor productivity generate short run increases in hours worked and are an important source of fluctuations in US output.

Keywords: Business cycles; Hours worked; Tax shocks; Technology shocks (search for similar items in EconPapers)
JEL-codes: E2 E31 H3 (search for similar items in EconPapers)
Date: 2010-08
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Citations: View citations in EconPapers (19)

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Journal Article: Technology-Hours Redux: Tax Changes and the Measurement of Technology Shocks (2011)
Chapter: Technology-Hours Redux: Tax Changes and the Measurement of Technology Shocks (2010)
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