Published online by Cambridge University Press: 16 April 2020
We assess the long-run growth effects of automation in the overlapping generations framework. Although automation implies constant returns to capital and, thus, an AK production side of the economy, positive long-run growth does not emerge. The reason is that automation suppresses wage income, which is the only source of investment in the overlapping generations model. Our result stands in sharp contrast to the representative agent setting with automation, where sustained long-run growth is possible even without technological progress. Our analysis therefore provides a cautionary tale that the underlying modeling structure of saving/investment decisions matters for the derived economic impact of automation. In addition, we show that a robot tax has the potential to raise per capita output and welfare at the steady state. However, it cannot induce a takeoff toward positive long-run growth.
We would like to thank the editor William Barnett, an anonymous associate editor, two anonymous referees, and Yueqing Hao for helpful comments and suggestions. Financial support from Fundação para a Ciência e a Tecnologia (UIDB/00315/2020), the Berlin Economics Research Associates program, and the Faculty of Business, Economics, and Social Sciences at the University of Hohenheim within its research focus “Inequality and Economic Policy Analysis (INEPA)” is gratefully acknowledged. All remaining errors are the responsibility of the authors.