Regulation

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What effect will AI-driven job replacement have on government tax revenues?

The central question is who will cover the loss in government tax revenues if artificial intelligence replaces workers.

What effect will AI-driven job replacement have on government tax revenues?

The central question is who will cover the loss in government tax revenues if artificial intelligence replaces workers. In the example company, if AI systems take over the jobs of one-tenth of employees, then personal-type taxes and contribution-based revenues paid for that firm would in theory fall by 10 percent. Currently this is not a serious problem if only a few firms are affected, but widespread adoption of the method poses a significant fiscal risk. The state would face both lower tax revenues and more unemployed people to support, increasing budget expenditures on social benefits and active labor-market measures. The impact will vary by sector and region, so local budgets may be affected to different degrees. The issue highlights the need to reform the tax system, the social safety net, and retraining programs. Possible solutions include a robot tax or separate taxation of value created by automation, corporate contributions to training, measures to promote employment, or targeted redistribution. Policymakers must weigh the balance between competitiveness and revenue stability as well as the short- and long-term social costs.