Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263705 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9775
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This study provides evidence for the US 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 21st 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 analyse 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 US 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.
Subjects: 
functional income distribution
labor income share
income taxes
automation capital
demography
growth
JEL: 
D33
E62
O41
J11
J20
Document Type: 
Working Paper
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