Fiscal Policy and Automation

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This research contributes to the recent policy discussion on corporate income taxation in favor of taxing supernormal profits of firms. The markup tax analyzed in our model is in principle equivalent to a tax on rent. Examples of rent tax include cash flow tax (Auerbach et al. 2017; Carton et al. 2019), residual profits tax (Beer et al. 2020), and allowance for corporate equity (Hebous and Klemm 2020). The main argument in the field of public finance so far has been profit shifting and tax avoidance of multinationals that pay very low effective tax rates on profits. For instance, the OECD’s inclusive framework on BEPS is based on the idea of taxing excess profits of foreign subsidiaries (pillar two minimum tax) because it is not easy to calculate the arm’s length price for the value of intangible assets. Our research reinforces the idea of the superiority of rent tax when artificial intelligence/robots/Big Tech companies are accompanied by monopolistic corporate power.

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