Should Robots be Taxed?

Produced by: 
National Bureau of Economic Research
Available from: 
September 2017
Paper author(s): 
Joao Guerreiro
Sergio Rebelo
Pedro Teles
Topic: 
Fiscal Policy - Public and Welfare Economics
Year: 
2017

We use a model of automation to show that with the current U.S. tax system, a fall in automation costs could lead to a massive rise in income inequality. This inequality can be reduced by raising marginal income tax rates and taxing robots. But this solution involves a substantial efficiency loss for the reduced level of inequality. A Mirrleesian optimal income tax can reduce inequality at a smaller efficiency cost, but is difficult to implement. An alternative approach is to amend the current tax system to include a lump-sum rebate. In our model, with the rebate in place, it is optimal to tax robots only when there is partial automation.

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