Government size and automation

Pablo Casas () and Jose Torres ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the consequences of automation for public finance. We find that as the automation rate increases, the government size, measured as the fiscal revenues to output ratio, declines due to the substitution of traditional inputs which bear the burden of taxes by the new automatic technology. These results are explained by the effects of automation on labor, where taxation of labor income (including social security contributions) represents the most important source of fiscal revenues in most advanced economies. The paper performs two additional counterfactual experiments. First, we calculate how individual tax rates should be changed in response to automation in order to keep constant fiscal revenues from the different sources of taxes. However, this experiment reveals that this fiscal policy would have significant harmful effects on output and labor, and that a deep reform of the current tax mix is compulsory to offset the effects of automation on public finance. Second, we calculate the tax rate on capital, without modifying the other tax rates, required to keep constant the size of the government, resulting in a capital income tax rate of around 0.77 for an automation rate of 45%.

Keywords: Automation; Taxes; Fiscal revenues; Autonomous capital; Traditional inputs (search for similar items in EconPapers)
JEL-codes: E22 E23 H30 O33 (search for similar items in EconPapers)
Date: 2022-11-04
New Economics Papers: this item is included in nep-pbe and nep-pub
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Journal Article: Government size and automation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:115271

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