Government size and automation

Pablo Casas () and Jose Torres ()

International Tax and Public Finance, 2024, vol. 31, issue 3, No 5, 780-807

Abstract: 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. This is 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 conducts two additional counterfactual experiments. First, we calculate how individual tax rates should be changed in response to automation in order to maintain constant fiscal revenues from the different sources of taxes. This experiment reveals that this fiscal policy would have significantly detrimental effects on output and labor, and indicates that a comprehensive reform of the current tax mix is necessary to counterbalance 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 $$45 \%$$ 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: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10797-024-09833-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Government size and automation (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:31:y:2024:i:3:d:10.1007_s10797-024-09833-0

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-024-09833-0

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().