Manoj Atolia
Department of Economics,
Florida State University (FSU)

"Growth, Income Distribution and Policy Implications of Automation"

Oct 11, 2023

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Abstract:

Motivated by recent discussions about the distributional implications of automation and the possibility of a "universal basic income" (UBI) program to address them, we analyze the distributional and political economy implications of automation in a task- based model of production. We conceptualize automation as a shift in the relative productivity of capital at certain tasks that reduces the set of tasks done by labor. We capture distributional concerns by including two kinds of agents — workers, who supply labor, and entrepreneurs, who own capital. After characterizing the equilibrium with fixed tax rates, we endogenize policy variables by computing the political economy equilibrium under majority voting, where policymakers have access to a capital tax and a transfer to workers (a "universal basic income"). We quantitatively study an episode of automation in a calibrated model, and find that workers prefer higher capital taxes in the long run, but lower capital taxes during the transition. Interestingly, this results in larger welfare gains for entrepreneurs than for workers relative to a constant tax regime, suggesting that capital owners stand to benefit from the institution of a UBI in a policy regime that maximizes worker welfare. In other results, we derive conditions under which the economy experiences full automation, characterize comparative statics of traditional technical progress vs. automation, give a condition under which automation may lower long-term wages, and show that all kinds of capital should be taxed at the same rate (i.e. no "robot taxes").