Government size and automation

Casas, Pablo and Torres, José L. (2022): Government size and automation.

Abstract

This paper explores the consequences of automation for public finance. We find that as the automation rate increases, the government size, measured as the fiscal revenues to output ratio, declines due to the substitution of traditional inputs which bear the burden of taxes by the new automatic technology. These results are explained by the effects of automation on labor, where taxation of labor income (including social security contributions) represents the most important source of fiscal revenues in most advanced economies. The paper performs two additional counterfactual experiments. First, we calculate how individual tax rates should be changed in response to automation in order to keep constant fiscal revenues from the different sources of taxes. However, this experiment reveals that this fiscal policy would have significant harmful effects on output and labor, and that a deep reform of the current tax mix is compulsory to offset the effects of automation on public finance. Second, we calculate the tax rate on capital, without modifying the other tax rates, required to keep constant the size of the government, resulting in a capital income tax rate of around 0.77 for an automation rate of 45%.

• Item Type: MPRA Paper
• Language: English
• Keywords: Automation; Taxes; Fiscal revenues; Autonomous capital; Traditional inputs
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; 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 > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

References

Acemoglu, D. and Restrepo, P. 2018. The Race Between Man and Machine: Implications of Technology for Growth, Factor Shares and Employment. American Economic Review, 108(6): 1488-1542.

Acemoglu, D. and Restrepo, P. 2020. Robots and Jobs: Evidence from US Labor Markets. Journal of Political Economy, 128(6): 2188-2244.

Aum, S., Lee, S. Y., and Shin, Y. 2018. Computerizing industries and routinizing jobs: Explaining trends in aggregate productivity. Journal of Monetary Economics, 97(1): 1-21.

Autor, D.H. 2015. Why Are There Still So Many Jobs? The History and Future of Workplace Automation. Journal of Economic Perspectives, 29(3): 3-30.

Basso, H. S., and Jimeno, J. F. 2021. From secular stagnation to robocalypse? Implications of demographic and technological changes. Journal of Monetary Economics, 117: 833-847.

Berg, A., Buffie, E. F. and Zanna, L. F. 2018. Should we fear the robot revolution? (The correct answer is yes). Journal of Monetary Economics, 97(1): 117-148.

Bongers, A. and Molinari, B. 2020. Economic growth, technological progress, and employment. In: Leal Filho W., Azul A., Brandli L., Özuyar P., Wall T. (eds). Decent Work and Economic Growth. Encyclopedia of the UN Sustainable Development Goals. Springer.

Cabrales, A., Hernández, P., and Sánchez, A. 2020. Robots, labor markets, and universal basic income. Humanities and Social Sciences Communications, 7(1): 1-8.

Casas, P., and Torres, J.L. 2021. Automation, automatic capital returns, and the functional income distribution. Economics of Innovation and New Technology, 1-23. Forthcoming.

Chamley, C. 1986. Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives, Econometrica, 54(3): 607-622.

Chari, V. V., Nicolini, J. P., and Teles, P. 2020. Optimal capital taxation revisited. Journal of Monetary Economics, 116: 147-165.

Chekina, V. D. and Vishnevsky, V. P. 2018. Robot vs. tax inspector or how the fourth industrial revolution will change the tax system: a review of problems and solutions. Journal of Tax Reform, 4(1): 6-26.

Chirinko, R.S. 2008. Sigma: The long and short of it. Journal of Macroeconomics, 30(5): 671-686.

Costinot, A. and Werning, I. 2018. Robots, Trade, and Luddism: A Sufficient Statistic Approach to Optimal Technology Regulation, NBERWorking Papers 25103, National Bureau of Economic Research, Inc.

de La Grandville, O., 1989. In quest of the Slutsky Diamond. American Economic Review 79(3): 468-481.

DeCanio, S. J., 2016. Robots and humans- complements or substitutes? Journal of Macroeconomics, 49(2): 280-291.

Eden, M., and Gaggl, P. 2018. On the Welfare Implications of Automation. Review of Economic Dynamics, 29: 15-43.

Fatás, A. and Mihov, I. 2001. Government size and automatic stabilizers: international and intranational evidence. Journal of International Economics, 55: 3-28.

Fernández de Córdoba, G. and Torres, J. L. 2012. Fiscal harmonization in the European Union with public inputs, Economic Modelling, 29(5): 2024-2034.

Fernández-Macías, E., Klenert, D., and Antón, J. I. 2021. Not so disruptive yet? Characteristics, distribution and determinants of robots in Europe. Structural Change and Economic Dynamics, 58: 76-89.

Frey, C. B., and Osborne, M. A. 2017. The future of employment: How susceptible are jobs to computerisation? Technological Forecasting and Social Change, 114(2): 254-280.

Galí, J. 1994. Government size and macroeconomic stability. European Economic Review, 38: 117-132.

Gasteiger, E. and Prettner, K. 2022. Automation, stagnation, and the implications of a robot tax. Macroeconomic Dynamics, 26(1): 218-249.

Grace, K., Salvatier, J., Dafoe, A., Zhang, B. and Evans, O. 2018. When will AI exceed human performance? Evidence from AI experts. Journal of Artificial Intelligence Research, 62: 729-754.

Graetz, G. and Michaels, G. 2018. Robots at Work. Review of Economics and Statistics, 100(5): 753-768.

Guerreiro, J., Rebelo, S., and Teles, P. 2022. Should robots be taxed?. The Review of Economic Studies, 89(1): 279-311.

Guo, J. T. and Harrison, S. G. 2006. Government size and macroeconomic stability: A comment. European Economic Review, 50: 1339-1346.

Hall, B. H. 2005. Measuring the Returns to R&D: the Depreciation Problem. Annals of Economics and Statistics, 79-80: 341-381.

Hoynes, H.W. and Rothstein, J. 2019. Universal Basic Income in the US and Advanced Countries. Annual Review of Economics, 11: 929-958.

International Federation of Robotics. 2016. World Robotics Industrial Robots 2016.

Jaimovich, N., Saporta-Eksten, I., Siu, H., and Yedid-Levi, Y. 2021. The macroeconomics of automation: Data, theory, and policy analysis. Journal of Monetary Economics, 122: 1-16.

Jimeno, J.F. 2019. Fewer babies and more robots: economic growth in a new era of demographic and technological changes. Journal of the Spanish Economic Association, 10(2): 93-114.

Judd, K. L. 1985. Redistributive taxation in a simple perfect foresight model, Journal of Public Economics, 28(1): 59-83.

Klenert, D., Fernández-Macías, E., Antón-Pérez, J. I. 2022. Do robots really destroy jobs? Evidence from Europe, Economic and Industrial Democracy, 1-37.

Kovacev, R. J. 2020. A Taxing Dilemma: Robot Taxes and the Challenges of Effective Taxation of AI, Automation and Robotics in the Fourth Industrial Revolution, The Contemporary Tax Journal, 9(2), 4.

Krusell, P., Ohanian, L. E., Ríos-Rull, J. V. and Violante, G. L. 2000. Capital-skill Complementarity and Inequality: A Macroeconomic Analysis. Econometrica, 68: 1029-1053.

Lankisch, C., Prettner, K., and Prskawetz, A. 2019. How can robots affect wage inequality?. Economic Modelling, 81: 161-169.

Lin, T. T. and Weise, C. L. 2019. A New Keynesian model with robots: Implications for business cycles and monetary policy. Atlantic Economic Journal, 47: 81-101.

Manyika, J., Chui, M., Miremadi, M., Bughin, J., George, K., Willmott, P. and Dewhurst, M. 2017. A Future That Works: Automation, Employment and Productivity. Chicago: McKinsey Global Institute.

Marwala, T. 2018. On Robot Revolution and Taxation. arXiv:1808.01666 [cs.CY].

Mazur, O. 2019. Taxing the Robots. Pepperdine Law Review, 48(2), 277.

Oberson, X. 2019. Taxing Robots? From the Emergence of an Electronic Ability to Pay to a Tax on Robots or the Use of Robots, Edward Elgar Publishing

OECD 2018. Revenues Statistics 1965-2017. Paris: OECD.

OECD 2019. Taxing Wages 2017-2018. Special feature: The taxation of median wage earners. Paris: OECD.

Slavik, C., and Yazici, H. 2014. Machines, buildings, and optimal dynamic taxes. Journal of Monetary Economics, 66: 47-61.

Straub, L., andWerning, I. 2020. Positive long-run capital taxation: Chamley-Judd revisited. American Economic Review, 110(1): 86-119.

Thuemmel, U. 2022. Optimal Taxation of Robots. Journal of the European Economic Association (forthcoming).

Vermeulen, B., Pyka, A., and Saviotti, P. P. 2020. Robots, Structural Change, and Employment: Future Scenarios. Handbook of Labor, Human Resources and Population Economics, 1-37.

Woirol, G. R. 2018. The Machine Taxers. History of Political Economy, 50(4): 709-733.

Zeira, J. 1998. Workers, machines, and economic growth. Quarterly Journal of Economics, 113(4): 1091-1117.

Zhang, P. 2019. Automation, wage inequality and implications of a robot tax. International Review of Economics and Finance, 59: 500-509.