The Impact of Subsidies on Measuring Productivity and the Sources of Economic Growth

Taxes and subsidies drive a wedge between prices received and paid by producers and those paid by purchasers. Motivated by the large economic subsidies that were part of the policy response to the COVID-19 pandemic, this paper introduces a new treatment for taxes and subsidies into the BEA-BLS Integrated industry-level production account. Over shorter time periods, and for particular individual industries, these adjustments affect measured productivity growth, but have a minimal impact at the aggregate. Nevertheless, for shorter time periods, and for industries that receive large subsidies, accounting for the effect of taxes and subsidies has a noticeable impact on the measured sources of growth.