Reference : Explaining the Decline in the US Labor Share: Taxation and Automation
Scientific journals : Article
Business & economic sciences : Macroeconomics & monetary economics
Explaining the Decline in the US Labor Share: Taxation and Automation
Heer, Burkhard mailto []
Süssmuth, Bernd mailto []
Irmen, Andreas mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM) >]
Interenational Tax and Public Finance
[en] Functional income distribution ; Labor income share ; Income taxes ; Automation capital ; Demography ; Growth
[en] This study provides evidence for the USA that the secular decline in the labor share
is not only explained by technical change or globalization, but also by the dynamics
of factor taxation, automation capital (robots), and population growth. First, we
empirically find indications of co-integration for the period from the last quarter of
the 20th to the first decade of the twenty-first century. Permanent effects on factor
shares emanate from relative factor taxation. The latter also have a lasting effect on
the use of robots. Variance decompositions reveal that taxing contributes to changes
in the two income shares and in automation capital. Second, we analyze and calibrate
a neoclassical growth model extended to include factor taxation, automation
capital, and capital adjustment costs. Labor and automation capital are perfect substitutes,
whereas labor and traditional capital are complements. The model replicates
the dynamics of the observed functional income distribution in the USA during the
1965–2015 period. Counterfactual experiments suggest that the fall in the labor
share would have been significantly smaller if labor and capital income tax rates had
remained at their respective level of the 1960s.

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