Automation and Inequality with Taxes and Transfers

32 Pages Posted: 22 Feb 2017

See all articles by Rod Tyers

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Yixiao Zhou

Australian National University (ANU) - Crawford School of Public Policy

Multiple version iconThere are 2 versions of this paper

Date Written: February 21, 2017

Abstract

Technical change in key OECD countries since 1990 is examined in terms of its contributions to total factor productivity and to factor bias. The dependence of real income and inequality on changes in factor abundance, total factor productivity, factor bias, the relative cost of capital goods and the progressivity of the tax system are quantified using an elemental general equilibrium model with three households. For the US, changes in factor bias are shown to have been responsible to the great majority of the observed increase in inequality between 1990 and 2008. The widely anticipated further twist away from low-skill labour is then examined, with downward rigidity of low-skill wages and transfers that sustain low-skill welfare, the increments to which are financed either from capital income or consumption taxes. The potential is identified for unemployment, or “subsidised leisure”, to rise to extraordinarily high levels, with Pareto improving gains requiring that the technology twist accompanies substantial increases in total factor productivity.

Keywords: Automation, income distribution, tax, transfers, general equilibrium analysis

JEL Classification: C58, D33, D58, O33

Suggested Citation

Tyers, Rod and Zhou, Yixiao, Automation and Inequality with Taxes and Transfers (February 21, 2017). CAMA Working Paper No. 16/2017 , Available at SSRN: https://ssrn.com/abstract=2921624 or http://dx.doi.org/10.2139/ssrn.2921624

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

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The University of Western Australia - Department of Economics ( email )

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HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

Yixiao Zhou

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

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