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Automation and inequality with taxes and transfers

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  • Rod Tyers
  • Yixiao Zhou

Abstract

Technical change in key OECD countries since 1990 is examined in terms of its contributions to total factor productivity and to factor bias. The dependence of real income and inequality on changes in factor abundance, total factor productivity, factor bias, the relative cost of capital goods and the progressivity of the tax system are quantified using an elemental general equilibrium model with three households. For the US, changes in factor bias are shown to have been responsible to the great majority of the observed increase in inequality between 1990 and 2008. The widely anticipated further twist away from low-skill labour is then examined, with downward rigidity of low-skill wages and transfers that sustain low-skill welfare, the increments to which are financed either from capital income or consumption taxes. The potential is identified for unemployment, or “subsidised leisure”, to rise to extraordinarily high levels, with Pareto improving gains requiring that the technology twist accompanies substantial increases in total factor productivity.

Suggested Citation

  • Rod Tyers & Yixiao Zhou, 2017. "Automation and inequality with taxes and transfers," CAMA Working Papers 2017-16, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2017-16
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-02/16_2017_tyers_zhou.pdf
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    Cited by:

    1. Yixiao ZHOU & Rod TYERS, 2017. "Automation and Inequality in China," Economics Discussion / Working Papers 17-13, The University of Western Australia, Department of Economics.
    2. Geoff Weir, 2018. "Wage Growth Puzzles and Technology," RBA Research Discussion Papers rdp2018-10, Reserve Bank of Australia.

    More about this item

    Keywords

    Automation; income distribution; tax; transfers; general equilibrium analysis;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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