## Fiscal Policy Can Help Broaden the Gains of AI to Humanity

_IMF Blog, June 17, 2024_

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## Bibliographic details
- Authors: Era Dabla-Norris, Ruud de Mooij
- Published: June 17, 2024

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### Overview
- Publication date: June 17, 2024
- Authors: Era Dabla‑Norris, Ruud de Mooij
- Core argument: Fiscal policy can play a major role in supporting a more equal distribution of gains and opportunities from generative-AI, but doing so requires significant upgrades to social-protection and tax systems worldwide.
- Context: New generative-AI technologies offer large productivity and public-service gains, but rapid, large-scale transformation raises risks of job losses and greater inequality. Governments should adopt an agile approach to prepare for highly disruptive scenarios.

### Social protection and labor-market responses
- Risks and transitions:
  - AI could eventually boost overall employment and wages, but could also put large swaths of the labor force out of work for extended periods, creating painful transitions.
- Unemployment insurance and wage support:
  - More generous unemployment insurance could cushion negative impacts, allowing displaced workers to find better skill matches.
  - Most countries have considerable scope to broaden coverage and generosity of unemployment insurance, improve portability of entitlements, and consider forms of wage insurance.
- Training, reskilling, and targeted assistance:
  - Sector-based training, apprenticeships, upskilling and reskilling programs should play greater roles in preparing workers for AI-era jobs.
  - Comprehensive social-assistance programs will be needed for workers facing long-term unemployment or reduced local labor demand due to automation or industry closures.
- Emerging-market and developing economy considerations:
  - Workers in such countries are less exposed to AI, but are also less protected by formal social-protection programs because of larger informal sectors.
  - Innovative approaches leveraging digital technologies can facilitate expanded coverage of social-assistance programs in these countries.

### Tax policy: whether and how to tax AI
- On taxing AI directly:
  - A specific tax on AI (for example, a "robot tax") is not advisable because only people can pay taxes; such a tax could reduce the speed of investment and innovation, be hard to implement, and, if ill-targeted, do more harm than good.
- Rebalancing tax incentives and corporate taxation:
  - In recent decades, some advanced countries scaled up corporate tax breaks on software and computer hardware to drive innovation; these incentives also tend to encourage firms to replace workers through automation.
  - Corporate tax systems that inefficiently favor the rapid displacement of human jobs should be reconsidered given the risk of magnified dislocations from AI.
  - Many emerging market and developing countries have corporate tax systems that discourage automation, which can be distortive by preventing investments that would enable catching up in the global AI economy.
- Redistributive taxation to offset rising inequality:
  - Generative-AI can lead to higher income inequality and concentration of wealth; taxes on capital income should be strengthened to protect the tax base against a further decline in labor’s share of income and to offset rising wealth inequality.
  - Strengthening corporate income taxes could help reverse the long-run trend since the 1980s of a declining tax burden on capital income in advanced economies and a rising burden on labor income.
  - Policy instruments cited as options:
    - The global minimum tax agreed by over 140 countries, which establishes a minimum 15-percent effective tax rate on multinational companies, is a step in the right direction.
    - Other possible measures include a supplemental tax on excess profits, stronger taxes on capital gains, and improved enforcement.

### Policy recommendations and priorities
- Upgrade social-protection systems:
  - Broaden coverage and generosity of unemployment insurance.
  - Improve portability of entitlements.
  - Consider wage insurance and expand comprehensive social-assistance for long-term unemployed or locally displaced workers.
- Invest in human capital:
  - Scale sector-based training, apprenticeships, upskilling and reskilling programs to prepare workers for AI-era jobs.
  - Increase public investment in education and social spending to broaden gains from AI (financing requires more public revenue).
- Reform tax systems to support workers and redistribution:
  - Reconsider tax incentives that unintentionally encourage automation and worker displacement.
  - Strengthen taxes on capital income and corporate taxes where appropriate.
  - Implement and enforce measures such as the 15-percent global minimum tax, supplemental taxes on excess profits, and stronger capital gains taxation.
- Tailor approaches for emerging-market and developing countries:
  - Use digital technologies to expand social-assistance coverage in economies with large informal sectors.
  - Balance corporate tax settings to avoid deterring productive automation while enabling catch-up investments.

### Broader implications and international cooperation
- Recognition of public funding role:
  - Recent AI breakthroughs build on years of investment in fundamental research, including through publicly funded programs.
- Long-term shaping of AI:
  - Decisions made now by policymakers will shape the evolution of AI for decades; priority should be ensuring applications broadly benefit society, leveraging AI to improve education, health, and government services.
- Need for global collaboration:
  - Given AI’s global reach, greater cooperation among countries will be increasingly important.

*Based on a staff discussion note contributed to by Fernanda Brollo, Daniel Garcia‑Macia, Tibor Hanappi, Li Liu, and Anh Dinh Minh Nguyen; blog authors: Era Dabla‑Norris and Ruud de Mooij; June 17, 2024.*

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## References

- [potential](https://www.imf.org/en/Blogs/Articles/2024/01/14/ai-will-transform-the-global-economy-lets-make-sure-it-benefits-humanity)
- [new IMF paper](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2024/06/11/Broadening-the-Gains-from-Generative-AI-The-Role-of-Fiscal-Policies-549639?cid=bl-com-SDNEA2024002)

_Source: https://www.imf.org/en/blogs/articles/2024/06/17/fiscal-policy-can-help-broaden-the-gains-of-ai-to-humanity_