Comment by United Nations Development Programme

Capital taxation. The average tax on capital income has declined in advanced economies during the past few decades. It is important that countries reverse this trend, especially under a disruptive AI scenario. First, low taxation of capital compared with labor can contribute to excessive labor displacement and exacerbate labor market frictions. Second, capital income taxes are essential to address the increasing inequality associated with rising market power and economic rents enjoyed by dominant firms in winner-take-all markets. Third, large labor displacements that reduce the labor income share will erode the tax base and reduce public revenue. Enhancing capital income taxes will not only prevent this but will boost revenue mobilization—which is necessary to finance higher education and social spending with the arrival of automation.