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. Pre-2008, robot diffusion lead to decreasing factor and tax income, and a shift from taxes on capital to goods. ICTs changed the structure of taxation from capital to labor, with decreasing employment, but increasing wages and labor income. Post-2008, we find an ICT-induced increase in capital income and services, but no effect on taxation from ICT/robots. Overall, automation goes through various phases with heterogeneous economic effects which impact the amount and structure of taxes. Whether automation erodes taxation depends on the technology and stage of diffusion, and thus concerns about public budgets might be myopic when focusing on the short-run and ignoring relevant technological trends.
This paper was revised in April 2022. For the original version please see here.
Hötte, K., Theodorakopoulos, A. & Koutroumpis, P. (2022). 'Automation and Taxation'. Oxford Martin School Working Paper No.2022-3. https://www.oxfordmartin.ox.ac.uk/publications/does-automation-erode-governments-tax-basis/