Hard budget constraints and artificial intelligence technology

Abstract

Motivated by the contradiction between a government's hard budget constraints and artificial intelligence, this study constructs a computable general equilibrium model embedded with various fiscal and tax policies to study the impact of artificial intelligence development on the Chinese economy under government budget constraints with different intensities. This paper seeks to find a reasonable policy that takes into account China's employment, income distribution, and budget constraints to achieve common prosperity. It finds that the softer the government's budget constraints, the smaller the negative impact of artificial intelligence on the economy. More specifically, allowing the government to increase its debts and spending is more effective than tax cuts. It is suggested that if the goal is to reconcile the contradiction between hard budget constraints and artificial intelligence, fiscal and tax policy combinations, together with an improvised soft budget constraint, are required to increase the taxation of capital to an appropriate degree. In order to resolve the contradiction between the government's hard budget constraints and the development of artificial intelligence in pursuit of common prosperity, a robot tax should be levied and automation capital taxed.