DP12238 Should Robots Be Taxed?

Author(s): Joao Guerreiro, Sérgio Rebelo, Pedro Teles
Publication Date: August 2017
Date Revised: August 2017
Keyword(s): automation, inequality, optimal taxation, robots
JEL(s): H21, O33
Programme Areas: Public Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12238

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 yields mediocre outcomes both in terms of efficiency and inequality. A Mirrleesian optimal income tax achieves better outcomes, but is difficult to implement. A practical compromise is to amend the tax system to include a lump-sum rebate. With this rebate in place, it is optimal to tax robots only when there is partial automation.