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a blog from young economists at Nova SBE

Will robots pay the future taxes?

Automation is growing rapidly, and robots are taking over human jobs. In a recent NBER working paper, MIT economists Daron Acemoglu and Pascual Restrepo analysed how the increase in industrial robot usage between 1990 and 2007 affected US local labour markets. They found that in areas exposed to industrial robots both employment and wages declined in a robust and significant manner. If this trend will continue, we might face higher unemployment. Smaller share of employed people will lead to lower income tax, which in turn lowers government revenue, and thus gives us a reason to be concerned about the future.

In an interview with Quartz, Bill Gates says that the governments should impose a tax on robots to forestall a social crisis. He suggests that one could rely a tax on their installation, or on the profits firms enjoy by saving on the costs of the human labour displaced. The idea is that this tax will slow down automation, and at the same time the money from the tax can be used to retrain workers and to finance public goods, such as health care and education. This last bit is very appealing, because an expansion of this sector will provide lots of hard-to-automate jobs in teaching or caring for the old and sick.

The problem with taxing robots, is that it is a capital investment. Economists typically advise against taxing such things, because more capital allow an economy to produce more. Taxation that deters investment is thought to make people poorer without raising much money. But the society has never faced threat of workers losing their old jobs faster than new sectors can absorb them. A forthcoming paper in Harvard Law & Policy review points out that higher unemployment will lead to government losing a substantial amount of tax revenues. The authors argue that today’s tax policy will have to be redesigned, and they have several suggestions; disallowing corporate tax deductions for automated works, creating an “automation tax” which mirrors existing unemployment schemes or increasing the corporate tax rate are just some of them. The authors argue that the ideal solution may be a combination of all their proposals.

According to The Telegraph, South Korea has introduced what is being called the world´s first tax on robots. The South Korean Government said it will reduce tax deduction benefits for investment in automation, which was introduced to boost productivity. The proposal could come into force at the end of the year, when the country´s current tax law is due to expire. Although this is not a direct tax on robots, it will contribute to slowing down automation, and thus preventing a rapid growth in the unemployment. We will have to wait and see if the rest of the world will follow South Korea´s example.

Dana Øye

 

 

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Author: studentnovasbe

Master student in Nova Sbe

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