Automation and taxation: An empirical assessment in Europe

12 May 2021

Kerstin Hötte, Angelos Theodorakopoulos, Pantelis Koutroumpis
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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. We show that automation goes through multiple phases, with heterogeneous economic impacts on production and its factors. In turn, this is associated with meaningful shifts in the amount and structure of taxes. Automation is negatively related to taxation through the incomes it directly affects. Robot diffusion was associated with decreasing labor and total tax income, whereas ICTs coincide with reductions in capital and total tax. Looking further into the efficiency gains from risting technological intensities we find that robots are not linked to increases in productivity but a broad reduction across factor incomes and a rise in income inequality. ICTs provide some support to improvements in efficiency but are still correlated with increases in inequality.