Optimal fiscal policy in the automated economy

Nakatani, Ryota (2022): Optimal fiscal policy in the automated economy.

Abstract

Adding (1) the endogenous labor supply of workers, (2) fiscal policy instruments, and (3) monopolistic competition to Berg et al.’s (2018) general equilibrium model of automation, we study how automation (i.e., robots and artificial intelligence) affects the efficacy of redistribution policy. Using the consumption equivalent welfare gain developed by Domeij and Heathcote (2004) and assuming a 50 percent increase in robot-augmented technology shock, we derive the optimal tax rates for various tax policy instruments in the steady state of the model economy calibrated for the United States. We find that the optimal capital income tax rate is 20 percent. Another finding is that the zero tax rate on the wage income of unskilled workers is an optimal tax policy. We also find that the optimal tax rates on robots and consumption are dependent on the preference of the government. Finally, we find that the Pareto-efficient optimal tax system is characterized as a combination of a 15.9 percent rate on capital income tax and a zero tax rate on unskilled workers’ income. Our analysis contributes to the literature on optimal taxation in the automated age.

• Item Type: MPRA Paper
• Language: English
• Keywords: automation; fiscal policy; optimal taxation; capital income tax; labor income tax; consumption tax; robot tax; social welfare; dynamic general equilibrium
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E25 - Aggregate Factor Income Distribution; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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