AI could help governments cut debt — but unevenly: Joachim Klement
SPY•AI-driven productivity gains could reduce government deficits and debt, but the benefits may vary by country and how gains are divided between workers and businesses. In the article’s scenarios, US debt could fall below 111% of GDP by 2036, while UK debt could drop from a projected 95% to about 89% by 2031.
1. US debt scenarios
The article estimates that an AI boost of 0.5 percentage points to annual US GDP growth could bring the debt-to-GDP ratio below 111% if gains accrue to businesses, or below 110% if workers capture half. The Congressional Budget Office’s baseline projects a 120% ratio in 2036. Depending on how the gains are allocated, the 2031 primary deficit could fall from 1.9% to as low as 1.3% of GDP, and the full deficit from 5.9% to 5.2%.
2. UK outlook
Using similar scenarios, the article estimates that UK debt could decline from the Office for Budget Responsibility’s 95% of GDP projection for 2031 to about 89%. The budget deficit could fall by one percentage point with a 0.1-point annual growth boost, or by as much as 1.3 points if growth receives a larger boost. The article cautions that AI’s growth effect in the UK could be smaller.
3. Uneven gains
The estimates depend on uncertain productivity gains and how they are shared. Higher UK tax rates could allow government to capture a larger share, while potential inequality and unemployment could raise welfare costs. The article says even optimistic US scenarios may not do enough to improve government finances substantially.
