What is it about?
This paper studies these equity-efficiency trade-offs by focusing on fiscal policies that redistribute the gains from automation and address income inequality. We use a dynamic general equilibrium model where automation replaces low-skilled workers, raises productivity, and increases the market power of its adopters. Using four different welfare criteria, we compare fiscal policy packages that increase different tax rates and transfer the proceeds or finance a labor tax cut for low-skilled workers.
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Why is it important?
Many studies predict massive job losses and real wage declines as a result of automation, which at the same time raises productivity and output.
Perspectives
We find that fiscal policy can improve the equity-efficiency trade-offs, by reducing inequality at a small loss of output. A mark-up tax outperforms other tax policies in the short/medium term by attenuating monopolistic distortions. When the society has strong inequality aversion, a robot tax’s inequality-reducing effects outweigh its costs in terms of detrimental effects on technological progress. Capital income and wealth taxes can improve only low-skilled workers’ income, reducing that of skilled workers and capitalists. The less distortive consumption tax has little redistributive effects.
Dr. Ryota Nakatani
International Monetary Fund
Read the Original
This page is a summary of: For the Benefit of All: Fiscal Policies and Equity-Efficiency Trade-Offs in the Age of Automation, SSRN Electronic Journal, January 2022, Elsevier,
DOI: 10.2139/ssrn.4305790.
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