Does the Us Tax Code Favor Automation?

121 Pages Posted: 28 Apr 2020 Last revised: 2 Jun 2021

See all articles by Daron Acemoglu

Daron Acemoglu

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

Andrea Manera

Massachusetts Institute of Technology (MIT)

Pascual Restrepo

Boston University - Department of Economics

Date Written: April 2020

Abstract

We argue that the US tax system is biased against labor and in favor of capital and has become more so in recent years. As a consequence, it has promoted inefficiently high levels of automation. Moving from the US tax system in the 2010s to optimal taxation of capital and labor would raise employment by 4.02% and the labor share by 0.78 percentage points, and restore the optimal level of automation. If moving to optimal taxes is infeasible, more modest reforms can still increase employment by 1.14–1.96%, but in this case efficiency can be increased by imposing an additional automation tax to reduce the equilibrium level of automation. This is because marginal automated tasks do not bring much productivity gains but displace workers, reducing employment below its socially optimal level. We additionally show that reducing labor taxes or combining lower capital taxes with automation taxes can increase employment much more than the uniform reductions in capital taxes enacted between 2000 and 2018.

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Suggested Citation

Acemoglu, Daron and Manera, Andrea and Restrepo, Pascual, Does the Us Tax Code Favor Automation? (April 2020). NBER Working Paper No. w27052, Available at SSRN: https://ssrn.com/abstract=3586184

Daron Acemoglu (Contact Author)

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

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Andrea Manera

Massachusetts Institute of Technology (MIT) ( email )

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Pascual Restrepo

Boston University - Department of Economics ( email )

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