Funding Government in the Age of AI

Transformative artificial intelligence (TAI) will reshape how economies generate and allocate value. It poses three fundamental challenges to public finance: widespread labor displacement that erodes wage-based tax revenues, borderless economic activity that defies geographically rooted levies, and concentration of economic gains that bypasses existing taxation mechanisms. A new approach to funding government is needed. Our work assesses the performance of nine public revenue strategies across scenarios that vary in their levels of labor displacement, productivity growth, and gains concentration. To do so, we build upon traditional tax evaluation approaches and introduce the FIRI Framework (Feasibility, Incidence, Resilience, and Incentives) to handle TAI-specific concerns. We identify the most promising portfolio of policy options, pinpoint key trade-offs, and highlight where future research should focus.