Fiscal policy and human capital in the race against the machine
(with Daniele Angelini and Stefan Niemann)
We analyze the policy trade-offs facing fiscal policy in a dynamic growth model with automation, education choice, and human capital formation. Although beneficial for economic growth, automation contributes to wage inequality. When human capital formation is affected by government spending, fiscal policy can enhance welfare through a coordinated increase in labor and robot taxes. The composition of taxes financing spending on transfers and education is key in determining the effects on economic growth and inequality, as the robot tax is the more redistributive instrument. We calibrate our model to the US economy and determine the welfare-maximizing tax policy. Optimality requires an initial reduction in the robot tax to foster automation-driven growth, followed by its gradual increase to address widening inequality. Education subsidies can be welfare-improving if they are financed through the labor tax without compromising higher education spending. Finally, we explore robustness under private contributions to higher education.
Population aging and public education spending
Work in progress.
Fiscal consolidation and inequality
Work in progress.