Robots, Trade, and Luddism: A Sufficient Statistic Approach to Optimal Technology Regulation

56 Pages Posted: 2 Oct 2018

See all articles by Arnaud Costinot

Arnaud Costinot

Massachusetts Institute of Technology (MIT) - Department of Economics; University of California, San Diego (UCSD) - Department of Economics

Iván Werning

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2018

Abstract

Technological change, from the advent of robots to expanded trade opportunities, tends to create winners and losers. How should government policy respond? And how should the overall welfare impact of technological change on society be valued? We provide a general theory of optimal technology regulation in a second best world, with rich heterogeneity across households, linear taxes on the subset of firms affected by technological change, and a nonlinear tax on labor income. Our first results consist of three optimal tax formulas, with minimal structural assumptions, involving sufficient statistics that can be implemented using evidence on the distributional impact of new technologies, such as robots and trade. Our second result is a comparative static exercise illustrating that while distributional concerns create a rationale for non-zero taxes on robots and trade, the magnitude of these taxes may decrease as the process of automation and globalization deepens and inequality increases. Our final result shows that, despite limited tax instruments, technological progress is always welcome and valued in the same way as in a first best world.

Suggested Citation

Costinot, Arnaud and Werning, Ivan, Robots, Trade, and Luddism: A Sufficient Statistic Approach to Optimal Technology Regulation (September 2018). CEPR Discussion Paper No. DP13209, Available at SSRN: https://ssrn.com/abstract=3259371

Arnaud Costinot (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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University of California, San Diego (UCSD) - Department of Economics ( email )

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Ivan Werning

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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