Tax changes, not technology, drive fluctuations in work hours and productivity.
Permanent technological improvements can lead to a temporary drop in hours worked, challenging the idea of a technology-driven business cycle. By considering changes in taxes, researchers found that tax shocks have long-term effects on hours worked, output, and labor productivity. After accounting for tax shocks, permanent shocks to labor productivity can cause short-term increases in hours worked and are a significant factor in fluctuations in US output.