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How powerful are fiscal and monetary policies in a directed technical change model with humans and robots?

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  • Oscar Afonso
  • Rosa Forte

Abstract

We develop a dynamic general equilibrium model where robots can be substituted for unskilled labour and public authorities can use fiscal and monetary policies to influence the macroeconomic aggregates. We show that an increase in the use of robots increases the competitiveness of the unskilled sector and decreases the technological knowledge gap. However, under substitutability, unskilled workers are replaced by robots, and due to the magnitude of this effect the wage inequality increases. To mitigate this impact, public authorities can resort to fiscal and monetary policies. For instance, taxation on robots will induce the substitution of robots by unskilled labour, thus benefiting the unskilled labour—relative employment and wages.

Suggested Citation

  • Oscar Afonso & Rosa Forte, 2023. "How powerful are fiscal and monetary policies in a directed technical change model with humans and robots?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3008-3032, July.
    • Handle: RePEc:wly:ijfiec:v:28:y:2023:i:3:p:3008-3032
    DOI: 10.1002/ijfe.2581
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