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Fiscal Policy and Human Capital in the Race Against the Machine

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  • Röser, Florian
  • Niemann, Stefan
  • Angelini, Daniele

Abstract

We analyze the policy trade-offs facing fiscal policy in a dynamic growth model with au-tomation, education choice, and human capital formation. Although beneficial for economic growth, automation contributes to wage inequality. When human capital formation is affected by government spending, fiscal policy can enhance welfare through a coordinated increase in labor and robot taxes. The composition of taxes financing spending on transfers and educa-tion is key in determining the effects on economic growth and inequality, as the robot tax is the more redistributive instrument. We calibrate our model to the US economy and determine the welfare-maximizing tax policy. Optimality requires an initial reduction in the robot tax to foster automation-driven growth, followed by its gradual increase to address widening inequal-ity. Education subsidies can be welfare-improving if they are financed through the labor tax without compromising higher education spending. Finally, we explore robustness under private contributions to higher education.
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Suggested Citation

  • Röser, Florian & Niemann, Stefan & Angelini, Daniele, 2023. "Fiscal Policy and Human Capital in the Race Against the Machine," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277672, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc23:277672
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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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