Robots and Humans: The Role of Fiscal and Monetary Policies in an Endogenous Growth Model

Óscar Afonso (), Elena Sochirca () and Pedro Cunha Neves ()
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Óscar Afonso: Faculty of Economics, University of Porto, CEF.UP and OBEGEF
Elena Sochirca: Department of Management and Economics, University of Beira Interior, NECE and NIPE
Pedro Cunha Neves: Faculty of Economics, University of Porto, CEF.UP and OBEGEF

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: In this paper we develop a dynamic general equilibrium growth model in which robots can replace unskilled labor and: i) the government uses tax revenues to invest in social capital and compensate those who do not work; ii) there is monetary policy with cash-in-advance restrictions that impact, for example, wages; iii) social capital increases skilled-labor productivity and facilitates the technological-knowledge progress. Our results confirm that by reducing the unskilled-to-skilled-labor ratio, the robotization process increases the skill premium (and thus wage inequality between skilled and unskilled workers), stimulates economic growth and improves welfare. We also show that fiscal and monetary policies can have important roles in amplifying or mitigating these effects of the robotization process and that implementing specific policies can generate an important efficiency-equity trade-off. Despite the existence of this trade-off, the long-run economic growth is higher with than without the fiscal and monetary policies, which underlines their crucial role in attenuating the negative aspects of Industry 4.0.

Keywords: Robots; Social Capital; Fiscal Policy; Monetary Policy; Growth (search for similar items in EconPapers)
JEL-codes: E62 I31 I38 O30 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2022-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-gro, nep-his, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:por:cetedp:2201

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