Automation and Inequality with Taxes and Transfers

40 Pages Posted: 12 Nov 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: November 9, 2017

Abstract

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. Observed declines in low-skill labour shares are shown to have been generic in the OECD and to have been responsible for most of the increase in US inequality between 1990 and 2016. The widely anticipated future twist away from low-skill labour toward capital is then examined, in combination with expected changes in population and its skill composition. With downward rigidity of low-skill wages the potential is identified for unemployment to rise to extraordinarily high levels. Productivity growth at twice the pace since 1990 is shown to limit this, though it does not slow the concentration of income. The superior policy response is shown to be a generalization of the US “earned income tax credit” system, with financing from taxes on consumption, rather than capital income.

Keywords: Automation, Income Distribution, Tax, Transfers, General Equilibrium Analysis

JEL Classification: C68, D33, D58, O33

Suggested Citation

Tyers, Rod and Zhou, Yixiao, Automation and Inequality with Taxes and Transfers (November 9, 2017). CAMA Working Paper No. 70/2017, Available at SSRN: https://ssrn.com/abstract=3068474 or http://dx.doi.org/10.2139/ssrn.3068474

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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