Optimal Taxation in the Automation Era

Nakatani, Ryota and Miyamoto, Hiroaki (2026): Optimal Taxation in the Automation Era.

Abstract

This paper studies the optimal tax-and-transfer policy when automation raises productivity but displaces unskilled workers. Using a general equilibrium model calibrated to the U.S. economy, we compute the steady-state social welfare-maximizing rate of each of four tax instruments: capital income taxation, unskilled wage taxation, taxation on automation capital (i.e., a robot tax), and consumption taxation. Following an increase in the productivity of automation-related capital, the welfare-maximizing capital income tax rate and robot tax rate are zero, as their long-run investment distortions outweigh their redistributive social benefits. In the baseline simulation, aggregate welfare is maximized by cutting the unskilled wage tax rate and, especially, the consumption tax rate. However, when unskilled labor and automation-related capital are highly substitutable, the optimal consumption tax rate increases, and the additional government revenue is redistributed to displaced unskilled workers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Automation; Optimal Taxation; Capital Income Tax; Labor Income Tax; Consumption Tax; Robot Tax
• 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; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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