Long Social Distancing: More than 10pct of Americans with recent work experience say they will continue social distancing after the COVID-19 pandemic ends, and another 45 pct will do so in limited ways

Long Social Distancing. Jose Maria Barrero, Nicholas Bloom & Steven J. Davis. NBER Working Paper 30568. October 2022. DOI 10.3386/w30568

Abstract: More than ten percent of Americans with recent work experience say they will continue social distancing after the COVID-19 pandemic ends, and another 45 percent will do so in limited ways. We uncover this Long Social Distancing phenomenon in our monthly Survey of Working Arrangements and Attitudes. It is more common among older persons, women, the less educated, those who earn less, and in occupations and industries that require many face-to-face encounters. People who intend to continue social distancing have lower labor force participation – unconditionally, and conditional on demographics and other controls. Regression models that relate outcomes to intentions imply that Long Social Distancing reduced participation by 2.5 percentage points in the first half of 2022. Separate self-assessed causal effects imply a reduction of 2.0 percentage points. The impact on the earnings-weighted participation rate is smaller at about 1.4 percentage points. This drag on participation reduces potential output by nearly one percent and shrinks the college wage premium. Economic reasoning and evidence suggest that Long Social Distancing and its effects will persist for many months or years.

Adaptation to taxation: Corporate income tax changes generate persistent effects on R&D expenditure, productivity and output whereas personal income tax changes trigger large but short-lived responses on the same

Short-Term Tax Cuts, Long-Term Stimulus. James Cloyne, Joseba Martinez, Haroon Mumtaz & Paolo Surico. NBER Working Paper 30246. July 2022. DOI 10.3386/w30246

Abstract: We study the persistent effects of temporary changes in U.S. federal corporate and personal income tax rates using a narrative identification approach. A corporate income tax cut leads to a sustained increase in GDP and productivity, with peak effects between five and eight years. R&D spending and capital investment display hump-shaped responses while hours worked and employment are much less affected. In contrast, personal income tax cuts trigger a short-lived boost to GDP, productivity and hours worked but have no long-term effects. We develop and estimate an endogenous growth model with variable factor utilization and show that these features generate a pro-cyclical response of productivity which is key to account for our empirical findings.

8 Conclusions

Do transitory changes in corporate and personal income taxes have persistent effects on output? And what are the channels? We answer the first question using local projections and narrative-identified tax shocks on post-WWII U.S. data. We answer the second question by running counterfactual simulations from an estimated structural model with endogenous growth, variable factor utilization and distortionary taxes.

Our main findings are that corporate income tax changes generate persistent effects on R&D expenditure, productivity and output whereas personal income tax changes trigger large but short-lived responses of capital expenditure, productivity and output. We show that matching the pro-cyclical response of productivity in the short-run and in the long-run is crucial for the ability of the estimated model to account for the dynamic effects of the two tax shocks on economic activity. Variable labor utilization appears important for replicating the short-term response of productivity and output to a personal income tax change, while R&D expenditure and technological adoption are key to account for the long-term effects of corporate income tax changes.