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Robots and Humans: The Role of Fiscal and Monetary Policies in an Endogenous Growth Model

Author

Listed:
  • Óscar Afonso

    (Faculty of Economics, University of Porto, CEF.UP and OBEGEF)

  • Elena Sochirca

    (Department of Management and Economics, University of Beira Interior, NECE and NIPE)

  • Pedro Cunha Neves

    (Faculty of Economics, University of Porto, CEF.UP and OBEGEF)

Abstract

In this paper we develop a dynamic general equilibrium growth model in which robots can replace unskilled labor and: i) the government uses tax revenues to invest in social capital and compensate those who do not work; ii) there is monetary policy with cash-in-advance restrictions that impact, for example, wages; iii) social capital increases skilled-labor productivity and facilitates the technological-knowledge progress. Our results confirm that by reducing the unskilled-to-skilled-labor ratio, the robotization process increases the skill premium (and thus wage inequality between skilled and unskilled workers), stimulates economic growth and improves welfare. We also show that fiscal and monetary policies can have important roles in amplifying or mitigating these effects of the robotization process and that implementing specific policies can generate an important efficiency-equity trade-off. Despite the existence of this trade-off, the long-run economic growth is higher with than without the fiscal and monetary policies, which underlines their crucial role in attenuating the negative aspects of Industry 4.0.

Suggested Citation

  • Óscar Afonso & Elena Sochirca & Pedro Cunha Neves, 2022. "Robots and Humans: The Role of Fiscal and Monetary Policies in an Endogenous Growth Model," CEF.UP Working Papers 2201, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:2201
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    References listed on IDEAS

    as
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Robots and Humans: The Role of Fiscal and Monetary Policies in an Endogenous Growth Model
      by Christian Zimmermann in NEP-DGE blog on 2022-03-12 17:34:16

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    More about this item

    Keywords

    Robots; Social Capital; Fiscal Policy; Monetary Policy; Growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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