Arnaud Costinot, MIT

"Robots, Trade, and Luddism"


Technological change, from the advent of robots to expanded trade opportunities, tends to create winners and losers. When are such changes welcome? How should government policy respond? We consider these questions in a second best world, with a restricted set of tax instruments. We establish a number of new optimal tax formulas as well as bounds on those optimal taxes. While distributional concerns create a rationale for non-zero taxes on robots and trade, we show that more robots, more trade, and more inequality may be optimally met with lower taxes. In spite of tax tools being restricted, we also show that productivity improvements are always welcome and valued in the same way as in a first best world.

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Contact person: Casper Worm