The World Bank has issued a stark warning that the rapid adoption of artificial intelligence threatens to undermine global tax revenues derived from labor, creating a structural fiscal challenge for governments.
In a new report, the lender argues that as AI displaces workers and shifts economic gains toward capital owners, the traditional reliance on income and payroll taxes becomes increasingly unsustainable.
The institution recommends that policymakers consider raising taxes on capital and corporate profits to compensate for the anticipated decline in labor-related receipts.
The report highlights a growing divergence between where economic value is created and where tax bases are located.
As automation reduces the need for human labor in key sectors, the workforce shrinks relative to capital intensity, leading to lower aggregate wages and, consequently, lower tax collections from employees.
The World Bank suggests that without a rebalancing of the tax mix, governments may face widening budget deficits as the AI revolution progresses.