Jevgenija Furgasė

Vytautas Magnus University, Kaunas,

Lithuania

jevgenija.furgase@vdu.lt

ORCID 0000-0001-6445-3314

Robot tax versus labour tax: Funding the future of public finance

Astrida Miceikienė

Vytautas Magnus University, Kaunas,

Lithuania

astrida.miceikienė@vdu.lt

ORCID 0000-0003-1432-7971

Abstract. Accelerating technological progress is a potential threat to employment. In this context, the reduction of taxes on labour income can be used as an effective measure to maintain employment, but it will inevitably decrease tax revenues. Various solutions are being considered to compensate for the loss of tax revenue, including the taxation of automated capital income (e.g., robots). This paper presents an analysis of the effectiveness of this tax as an alternative to labour income tax in the context of technological progress. The study employs a general equilibrium model that has been calibrated to the European Union economy. The model is used to examine a range of policy scenarios that involve a combination of reduced labour income tax rates with a tax on robots at different rates (5%, 10%, and 20%). The modelling results show that robot taxation, while attractive in theory, is inefficient in practice, as it hinders technological progress and economic growth. The findings confirm that a robot tax: (1) leads to lower employment levels than a reduction in labour taxes alone; (2) has a negative impact on economic growth, especially at high levels of automation; and (3) does not generate sufficient revenue to compensate for the reduction in labour taxes. It is, therefore, evident that alternative ways of ensuring fiscal sustainability in an automated economy must be identified.

Received: March, 2024

1st Revision: February, 2025

Accepted: March, 2025

DOI: 10.14254/2071-8330.2025/18-1/5

JEL Classification: H25, O33, E62

Keywords: robot tax, labour income tax, technological progress, employment, public finance