Optimal Taxation of Robots

Current Research
Uwe Thuemmel
Year: 2020

I study the optimal taxation of robots, other capital, and labor income. I show that it is optimal to distort robot adoption. The robot tax (or subsidy) exploits general-equilibrium effects to compress wages, which reduces income-tax distortions of labor supply, thereby raising welfare. In the calibrated model, when robots are expensive, a robot subsidy is optimal. As robots get cheaper, it becomes optimal to tax them. Yet, when reforming the status-quo tax system, most welfare gains can be achieved by adjusting the income tax. The additional gains from taxing robots differently than other equipment capital are close to zero.

See here for the previous version: CESifo Working Paper 7317.

Optimal Linear Income Taxation and Education Subsidies under Skill-Biased Technical Change

Current Research
Bas Jacobs, Uwe Thuemmel
Year: 2020

This paper studies how linear tax and education policy should optimally respond to skill-biased technical change (SBTC). SBTC affects optimal taxes and subsidies by changing i) direct distributional benefits, ii) indirect redistributional effects due to wage-(de)compression, and iii) education distortions. Analytically, the effect of SBTC on these three components is shown to be ambiguous. Simulations for the US economy demonstrate that SBTC makes the tax system more progressive, since SBTC raises the direct distributional benefits of income taxes, which more than offset their larger indirect distributional losses, and it increases education distortions. Also, SBTC lowers optimal education subsidies, since SBTC generates larger direct distributional losses of education subsidies, which more than offset their larger indirect distributional gains, and it exacerbates education distortions.

Optimal Taxation of Income and Human Capital and Skill-Biased Technical Change

Current Research
Bas Jacobs, Uwe Thuemmel
Year: 2018

How should redistributive governments change tax and education policy in response to skill- biased technical change? To answer this question, this paper merges the canonical model of skill-biased technical change due to Katz and Murphy (1992) with the continuous-type Mirrlees (1971) model. Workers of different ability face an extensive education choice to be come high-skilled. Wages are endogenous. Optimal marginal income tax rates follow the same formula as in Mirrlees (1971). The intercept of the optimal tax function differs for low-skilled and high-skilled workers, while marginal tax rates are the same for high-skilled and low-skilled workers at the cut-off ability where workers are indifferent between being high-skilled or not. We show that education should optimally be taxed on a net basis. Moreover, optimal tax and education policies do not exploit general-equilibrium effects on the wage distribution to reduce pre-tax earnings differentials. SBTC has ambigous effects on optimal marginal tax rates depending only on how social welfare weights change. SBTC has ambiguous effects on income net taxes on education, since distributional benefits and distortions simultaneously increase. Numerical simulations demonstrate that SBTC leads to higher optimal marginal income taxes for middle incomes, while lowering marginal income taxes towards the top. Skill-biased technical change raises optimal marginal income tax rates especially around the income level of the marginally high-skilled worker. The tax system becomes more progressive in response to SBTC. Education subsidies increase in response to SBTC.