Automation and taxation:An empirical assessment in Europe

Decomposing taxes by source (labor, capital, sales), we analyze the impact of automation (1) on tax revenues, (2) the structure of taxation, and (3) identify channels of impact in 19 EU countries during 1995-2016. Robots and Information and Communication Technologies (ICT) are different technologies designed to automate manual (robots) or cognitive tasks (ICT). Until 2007, robot diffusion was associated with decreasing factor and tax income, and a shift from taxes on capital to goods. ICTs coincided with changes in the structure of taxation from capital to labor. We find decreasing employment, but increasing wages and labor income. After 2008, we do not find an effect for robots but observe an ICT-induced increase in capital income, a rise of services, but no effect on taxation. Automation goes through different phases with different economic impacts which affect the amount and structure of taxes. Whether automation is negatively related to taxation depends (a) on the technology type, (b) the stage of diffusion and (c) local conditions.