Implications for Tax Policy of Lower Trend Productivity Growth

The slow observed rate of productivity growth in recent years has been a source of disappointment, concern, and—to some extent—surprise in both the academic and policymaking communities. In the United States, for example, labor productivity growth in the nonfarm business sector has averaged just 0.8 percent over the past half dozen years (see figure 1). Low rates of capital investment in the wake of the Great Recession may be contributing to recent sluggishness, but the disappointing performance of productivity growth appears to have roots that pre-date the downturn. Indeed, a growing body of academic literature documents a downshift in the rate of U.S. labor productivity growth and total factor productivity growth to the early-to-middle part of the last decade (for example, Fernald, 2014 and Fernald, Hall, Stock and Watson, 2017). Other research demonstrates that the slowdown in productivity growth extends well beyond the United States (for example, Adler, Duval, Furceri, Çelik, Koloskova, and Poplawski-Ribeiro, 2017). Many of advanced economies have seen similarly low productivity growth in recent years—for example, in the OECD countries, productivity growth averaged 0.9 percent per year between 2011 and 2015.