When the Middle Class Undermines Progress: The Political Economy of AI Regulation

The classic literature argues that a large middle class is a prerequisite for economic development. Is this true when AI progress threatens to disrupt the labor market? On the one hand, uncertainty about the consequences can impede the passage of AI-friendly regulation: voters fear the prospect of losing when the uncertainty is resolved. On the other, granular information about reformconsequences may reduce political support as well. In our model, a larger middle class hampers reform, compensatory redistribution is most politically effective when its welfare justification is weakest, and AI regulatory sandboxes encounter resistance because new information undermines reformcoalitions