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Searching for Wage Growth: Policy Responses to the Robot Revolution

Author

Listed:
  • Andrew Berg

    (International Monetary Fund)

  • Edward Buffie

    (Indiana University)

  • Mariarosaria Comunale

    (International Monetary Fund)

  • Chris Papageorgiou

    (International Monetary Fund)

  • Luis-Felipe Zanna

    (International Monetary Fund)

Abstract

The current wave of technological revolution is changing the way policies work. This paper examines the growth and distributional implications of cuts in the corporate tax rate and public investment in infrastructure and education in a neoclassical growth model with “robot†capital (a broad definition of robots, Artificial Intelligence, computers, big data, digitalization, networks, sensors and servos). We find that incorporating robot capital into the model makes a big difference to policy outcomes: the trickle-down effects of corporate tax cuts on unskilled wages are attenuated, and the advantages of investment in infrastructure, and especially in education, are bigger. Based on our calibrations, grounded in new empirical estimates, infrastructure investment and corporate tax cuts dominate investment in education in a “traditional†economy. However, in an economy with robots, infrastructure investment dominates corporate tax cuts, while investment in education tends to produce the highest welfare gains of all. (Copyright: Elsevier)

Suggested Citation

  • Andrew Berg & Edward Buffie & Mariarosaria Comunale & Chris Papageorgiou & Luis-Felipe Zanna, 2025. "Searching for Wage Growth: Policy Responses to the Robot Revolution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 57, July.
    • Handle: RePEc:red:issued:21-81
    DOI: 10.1016/j.red.2025.101286
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    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
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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