Optimal Uniform Capital Taxation in a Partially Automated Society

Hideto Koizumi, Business Economics and Public Policy, The Wharton School

Abstract: A recent rapid-automation movement has been displacing routine labor and has sparked a series of discussion about taxation on automation such as a robot tax. However, the government’s dilemma is that the planner may want to tax such physical capital that displaces routine labor–for example, industrial robots–for redistributive motives but does not want to tax other physical capital that increases such workers’ productivities for instance, collaborative robots (cobots). This paper studies a novel setting of the optimal capital taxation on physical capital in which there is asymmetric information on both labor types and capital types between the planner and market. In particular, my model focuses on a two-by-two scenario where there are two types of labor (routine and non-routine labor) and two types of capital (displacing and reinstating capital). Despite asymmetric information, I find that the optimal uniform capital tax rate over different types of capital is strictly positive, as long as the solution is interior.

Read the full working paper here (PDF).