This is a Brookings Center on Regulation and Markets working paper.
This version corrects an error in the abstract and text describing the impact of AI on budget deficits.
Abstract
We simulate the impact of artificial intelligence (AI) on the long-term federal fiscal outlook. This paper introduces a framework for how AI will affect fiscal budgets through four primary channels: mortality rates and the size of the population, the price of health care services, demands for health care services, and aggregate productivity. Using this framework, we show that the nature of the AI shock is critical, as the impact of the shock on annual budget deficits could range from an increase of 1 percent of GDP to a decrease of 1.5 percent of GDP by 2044, with the latter reducing annual budget deficits in 2044 by roughly one fifth.
Authors
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Acknowledgements and disclosures
The views here represent those of the authors and do not reflect the views of the Federal Reserve Bank of Minneapolis or the Federal Reserve system.
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We thank Liam Marshall for outstanding research assistance. We also thank Emilia Javorsky for a helpful discussion at the Brookings Artificial Intelligence Author’s Conference, and other participants in the Brookings Artificial Intelligence Author’s Conference for helpful comments and feedback. All errors or omissions are our own.
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