An artificial intelligence productivity boom, if it fully materialises, could give major economies more time to stabilise their public finances, economists say. However, AI-driven growth alone is unlikely to solve the deep-rooted fiscal challenges facing debt-laden nations.
Public debt levels are already above 100% of GDP in most advanced economies and are projected to rise further. Ageing populations, higher interest payments, increased defence budgets and climate-related spending continue to put pressure on government finances.
Policymakers in the United States are optimistic that AI growth could help lift productivity after years of sluggish expansion following the 2008 financial crisis. Economists argue that artificial intelligence has the potential to improve worker efficiency, automate routine tasks and allow employees to focus on higher-value activities. Stronger productivity could, in theory, support higher economic growth.
Faster growth would help governments manage spending and debt more effectively, potentially easing pressure from bond markets. To assess the long-term fiscal impact of AI productivity gains, the OECD and several leading economists have shared preliminary estimates.
Filiz Unsal, deputy director of economic policy and research at the OECD, said that if AI increases employment and productivity, public debt across OECD countries — including the United States, Germany and Japan — could fall by around 10 percentage points from the roughly 150% of GDP projected for 2036. Even so, that would still represent a significant increase from current levels near 110%.
The overall impact will depend on whether AI-driven job creation outweighs job losses from automation. It will also hinge on whether companies pass higher profits on to workers through wage growth and how governments manage public spending.
In the United States, some economists estimate that under an optimistic scenario, public debt could rise more slowly to around 120% of GDP over the next decade, compared with about 100% today. Others expect little meaningful improvement.
“Productivity can dramatically improve fiscal dynamics,” said Idanna Appio, a former New York Federal Reserve economist and now a fund manager at First Eagle Investment Management. However, she cautioned that America’s fiscal challenges extend far beyond what productivity gains alone can address.
Demographics remain a major constraint on how much AI can ease the debt burden. Ratings agency S&P does not expect significant improvement in public finances by the end of the decade. Analysts warn that relying on an AI-driven growth surge is uncertain and cannot be guaranteed.
OECD research suggests that while the United States and Britain may see strong productivity gains from AI adoption, countries such as Italy and Japan could experience more limited benefits due to lower adoption rates and smaller technology-intensive sectors.
Kevin Khang, head of global economic research at Vanguard, argues that ageing populations and entitlement spending are at the core of the debt problem. In his view, artificial intelligence may buy time, but meaningful fiscal reform remains essential.
Khang expects AI could lift U.S. economic growth to an average of 3% through 2040, above the Federal Reserve’s estimate of roughly 2% potential growth. Higher growth and tax revenues could slow debt expansion to around 120% of GDP by the late 2030s. Without strong AI-driven gains, however, he sees debt potentially climbing toward 180%, especially if slower growth and higher borrowing costs weigh on public finances.
Bond markets have already shown a willingness to penalise governments for excessive spending, particularly after the sharp rise in yields following the pandemic. A downturn or recession could intensify scrutiny before any AI productivity gains fully materialise.
There is also uncertainty around how AI will affect tax revenues and public spending. While stronger productivity could boost government income, job displacement or concentration of profits in capital-intensive sectors — often taxed less heavily than labour — could limit revenue gains.
On the expenditure side, governments may benefit from efficiency improvements. However, higher wages linked to productivity gains could also increase public sector labour costs and entitlement payments, reducing the net fiscal benefit.
Economists stress that the long-term impact of AI on real interest rates and borrowing costs remains unclear. Much will depend on whether economic growth consistently outpaces rising debt servicing costs.
Ultimately, while artificial intelligence offers the promise of higher productivity and stronger economic growth, it is not a guaranteed solution to the mounting debt pressures facing major economies. Fiscal discipline and structural reform will remain central to managing long-term public finances.
