The contractionary effects of tax shocks on productivity: An empirical and theoretical analysis

Syed Hussain

Journal of Macroeconomics, 2015, vol. 43, issue C, 93-107

Abstract: I analyze the effects of tax policy changes on US Total Factor Productivity. VAR estimates show that permanent and exogenous tax increases have strong, permanent, and negative effects on TFP which represent about 80% of change in output following the tax increase. I then build a DSGE model which has learning-by-doing and endogenous TFP evolution. The benchmark model is able to replicate the empirical impulse responses. However, when I calibrate the model as in the literature, the effect of taxes on TFP is substantially less elastic than in the data. I argue that this divergence may arise because tax changes labeled as exogenous can give spurious results or because of a mis-specified model.

Keywords: TFP; Taxes; VAR; DSGE; Learning by doing; Endogenous TFP (search for similar items in EconPapers)
JEL-codes: E23 E62 H31 H32 O41 O47 O51 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:43:y:2015:i:c:p:93-107

DOI: 10.1016/j.jmacro.2014.09.006

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