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What is the potential growth rate of the U.S. economy, and how might policy affect it?

Jason Furman ()
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Jason Furman: Harvard Kennedy School of Government

Business Economics, 2017, vol. 52, issue 3, 158-167

Abstract: Abstract The answer to the question “What will future potential growth be?” is as important as it is unknowable. This paper attempts to predict future U.S. potential output growth by combining what is unknown (future productivity growth, the performance of the labor market) with what is known (the evolution of the age structure of the population). It does so in two ways. First, this paper uses the historical experience of potential labor productivity growth, labor force participation, and weekly hours to simulate a range of outcomes for future potential growth—finding a 90% confidence interval that ranges from 0.7% annual growth to 3.0% annual growth, centered by construction around the Congressional Budget Office projection of 1.8% annual growth. Second, the paper examines a range of specific economic policies that the Trump Administration might pursue in terms of their impact on economic growth both in the short run and over the next decade—finding that an outer bound of these policies could be plus or minus 0.5 percentage point on the annual growth rate, but that these policies would most likely subtract a small amount from growth.

Keywords: Potential growth; Economic policy; Economic outlook; Trump policies (search for similar items in EconPapers)
Date: 2017
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