Automation and Taxation

TL;DR

This paper examines how automation and ICTs have historically affected tax revenues and structures in 19 EU countries from 1995 to 2016, revealing complex, phase-dependent impacts on different tax bases.

Contribution

It provides a detailed analysis of the evolving effects of automation on taxation structure and revenues across multiple countries and time periods, highlighting the importance of technological stages.

Findings

Pre-2008, automation decreased tax revenues and shifted taxes from capital to goods.

ICTs shifted taxation from capital to labor, reducing employment but increasing wages.

Post-2008, automation increased capital income and services without affecting ICT/robot-related taxes.

Abstract

Decomposing taxes by source (labor, capital, sales), we analyze the impact of automation on tax revenues and the structure of taxation in 19 EU countries during 1995-2016. Pre-2008, robot diffusion lead to decreasing factor and tax income, and a shift from taxes on capital to goods. ICTs changed the structure of taxation from capital to labor, with decreasing employment, but increasing wages and labor income. Post-2008, we find an ICT-induced increase in capital income and services, but no effect on taxation from ICT/robots. Overall, automation goes through various phases with heterogeneous economic effects which impact the amount and structure of taxes. Whether automation erodes taxation depends on the technology and stage of diffusion, and thus concerns about public budgets might be myopic when focusing on the short-run and ignoring relevant technological trends.