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📢 Final edition of OECD's « Fiscal Federalism 2022 » out today!📕
👉🏼 You'll find the latest on the impacts of the crisis, for state & local finances 📉💰💸📈
👉🏼 Good practices in all areas of intergovernmental fiscal relations 💫🏃♀️⚖️💭
💸eBook version: oe.cd/il/FiscalFederalism🧵
Sean Dougherty 🌍 retweeted
I've been in France since 2002 and have never seen the streets so violent nor the politics so extreme. From the sacking of the supermarket on my street to the prospect of Présidente Le Pen, here's me @FT including thoughts from 2 French Nobel laureates as.ft.com/r/addcad57-0f9d-4e…
Sean Dougherty 🌍 retweeted
🔭 Why this matters: AI may make the economy far more productive while changing much of today's work, unevenly across occupations. Yet estimates span orders of magnitude and are hard to compare.
We restate the debate as differences in a few parameters: anthropic.com/institute/econ…
Sean Dougherty 🌍 retweeted
The timing of the paper could unfortunately not be better, given the evolution of the spread on French bonds…
The central mechanism in the paper: The strength of the effect of the subjective probability of default on the actual probability of default.
The main implication, put roughly: spreads can jump a lot in response to even small bad news about the likely evolution of debt.
The other implication, nerdier, and more paradoxical: Higher macro of fiscal uncertainty weakens the effect of the subjective probability on the actual probability and makes jumps and multiple equilibria less likely.
@GonHuertas gives a more precise, visually beautiful, explanation. Look at it.
I shall use the occasion however to reflect on something else, namely the frustration and the pleasure in doing research. This paper was started six years ago… At the time, it looked like a straightforward challenge: Characterize the solution to a simple, although nonlinear, equation: The evolution of debt depends on the interest rate, which depends on the risk of default, and thus in turn on the evolution of debt.
For much of the six years, I banged my head against the wall, thinking I had the solution until it collapsed, trying again and again. The project became known at home as "the wall". Then, @GonHuertas who was my RA at the time, and @Pmbruera, then an MIT student, took pity on me and came to the rescue. And we did succeed.
Frustration, then elation. This is why I have loved doing research for the last N years.
When public debt grows, default risk can jump suddenly.
Our new paper with @ojblanchard1 and @pmbruera finds that higher fiscal uncertainty reduces (!) the range of debt levels where self-fulfilling defaults can happen.
It's been years in the making.
nber.org/papers/w35850
Sean Dougherty 🌍 retweeted
Why I Changed My Mind About AI Risk open.substack.com/pub/persua…
Sean Dougherty 🌍 retweeted
WORRYING TRENDS IN PISA SCORES
The latest PISA (Programme for International Student Assessment) results are out.
PISA is a landmark program and the most comprehensive assessment of students across the word and its results provide invaluable information about the trends and performance of national education systems.
The latest global results are not very encouraging: after the steep decline in student performance in 2022, which took place during the pandemic, there is yet another large decline in scores in most countries (see the graphs below).
The largest decline in performance occurred in Reading. Perhaps not too surprising, given that “digital distractions” became all pervasive.
As Andreas Schleicher (director of the OECD Education directorate) mentions: “A large share of students struggled on reading tasks involving longer texts, requiring higher-order cognitive skills… At the same time, all students are more likely to “read in haste”, at least some of the time.”
Remember: these trends are happening for several years, preceded the pandemic, and, of course, the advent and diffusion of Artificial Intelligence.
If nothing is done, AI will likely reinforce these trends, even though students might obtain better results when they can use AI tools in their exams.
These are trends that should worry us all and are a call for action for policymakers. The next few years will be crucial to revert these worrying trends.
@OECD
@OECDEduSkills
@SchleicherOECD
Sean Dougherty 🌍 retweeted
A common AI scenario is that GDP per capita goes up but workers get poorer, and making workers whole requires massive redistribution. In my latest paper, I run the numbers and conclude that this is probably incorrect. marginalrevolution.com/margi…
Sean Dougherty 🌍 retweeted
In a past post, I highlighted that income per capita and fertility rates, once strongly negatively correlated across OECD countries, are now positively correlated:
xitter.cf/JesusFerna7026/status/…
Similar reversals have occurred in many other classic negative relationships between fertility and other variables. Today, I will examine one of the most frequently cited relationships: the link between female labour-force participation and fertility.
The exercise is the same as before. I use total fertility rates from the U.N. World Population Prospects 2024 and female employment data from the OECD Annual Labour Force Statistics, specifically female civilian employment as a percentage of the population aged 15 to 64. Then, I compute the rank correlation across the 18 countries with continuous coverage from 1970 (as early as I can go): Australia, Austria, Belgium, Canada, Finland, France, Germany, Ireland, Italy, Japan, Korea, New Zealand, Norway, Spain, Sweden, Switzerland, the U.K., and the U.S.
In 1971, the correlation between female labor participation rate and fertility was -0.74. That is, where women worked more in the market, they had fewer children on average. This is the standard story everyone has in mind (and one of the most frequent comments readers make): since market work and child-rearing compete for mothers' time, higher female labor participation leads to lower fertility.
The fascinating observation is that the sign of the correlation changed rapidly during the 1980s. The correlation was still -0.47 in 1981, crossed zero in 1985, and reached +0.52 in 1988. This large flip occurred in just a few years, well before the arrival of smartphones or the large immigration flows of the 1990s and 2014-2024. Since 1988, the positive correlation has gradually eroded to about +0.30, but higher female employment still predicts higher fertility, albeit less strongly than it did around 1990.
Again, the question for your favorite theory of fertility is: how does your explanation account for this abrupt reversal in the 1980s across 18 rich economies?
As with all empirical work, some caveats are important. First, yes, 18 countries constitute a small cross-section. The year-to-year wiggles after 1990 are mostly noise, so take only the broad pattern seriously. But I believe that, by the year 2050 or so, this will be the shape of the relationship between female labor participation and fertility for the whole planet (or most of it).
Second, the baseline OECD annual series ends in 2013. To extend the sample to 2023, I switched to a second OECD series, the infra-annual labor statistics, which reports participation rather than employment. Since the two series overlap from 2005 to 2013, I can check that they differ by only 0.07 on average. I plot both rather than splicing them into a single line so you can judge it yourself.
Third, Luxembourg is excluded. Many of its workers are cross-border commuters, not residents, which produces figures that don't make sense. Also, Norway is missing 1971 (who knows why?), so I interpolate it.
And as always, credit where it is due. Namkee Ahn and Pedro Mira first documented this reversal in "A note on the changing relationship between fertility and female employment rates in developed countries," Journal of Population Economics, 2002. Tomas Kögel, in the same journal in 2004, argued that the cross-country sign flip reflects unobserved country heterogeneity rather than a change in the underlying relationship. I find Ahn and Mira's argument more convincing, but you should read Kögel as well.
Comments always welcome!
One of the claims in “Terra Incognita” that readers have found most interesting is that income per capita and fertility are now positively correlated across OECD countries: the richer a country is, the higher its fertility.
To document this claim more carefully, I have completed the following exercise.
I take total fertility rates from the U.N. World Population Prospects 2024 and real GDP per capita from the new Penn World Table 11.0 (expenditure side, chained PPPs, released in October 2025 and now running to 2023). For each year from 1954 to 2022, I compute the rank correlation across countries between fertility and real GDP per capita and plot the results. I use 30 of the 38 countries that are OECD members today (regardless of when they joined). I drop the other eight because they have data gaps, as former socialist economies did not compute GDP using the standard methodology (Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia).
In the mid-1950s, the correlation among the 30 countries was about -0.32, and it deepened through the 1960s and most of the 1970s, until a minimum of -0.78 in 1977. This is the world most people have in mind: the opportunity cost of children rises with income and, the richer you are, the fewer children you have. Gary Becker and dozens of economists wrote papers trying to understand this pattern.
But then, in 1977, well before anyone had heard about smartphones, social media, or some of the other “usual suspects” behind the recent drop in fertility, something changed: the rank correlation started climbing in a steady way, becoming positive in the second half of the 2010s. Right now, being richer means having higher fertility rates. And, as far as I can tell, there is no indication this trend is slowing down.
So, if you have a favorite explanation for the evolution of fertility over the last few decades, ask yourself: how can my explanation account not only for the drop in fertility but also for the rank correlation switching directions in 1977?
A couple of warnings. First, I use the rank correlation because it is immune to outliers. Luxembourg and Ireland report GDP per capita figures that nobody should take at face value.
Second, I am using the U.N. World Population Prospects 2024, which I have criticized for overestimating the fertility rates of the poorest OECD members (Mexico, Colombia, Costa Rica, Türkiye). If you use the fertility rates reported by their own statistical agencies, the rank correlation is even more positive. But I don’t want anyone accusing me of fiddling with the data.
Finally, credit where it is due: I first learned about this reversal from Doepke, Hannusch, Kindermann, and Tertilt, “The Economics of Fertility: A New Era,” in Lundberg and Voena (eds.), Handbook of the Economics of the Family, vol. 1, North-Holland, 2023, pp. 151-254. Anyone who wants to go deeper should start there.
Comments always welcome!
Sean Dougherty 🌍 retweeted
Last week I posted a new paper with Patrick Norrick: “Terra Incognita: The Economics of a Shrinking World.”
We chose the title deliberately. No society in history has experienced the fertility levels now seen in South Korea, China, Thailand, Colombia, Chile, and many other countries. Our knowledge of the causes (and of the economic consequences) remains far more limited than most public discussion acknowledges. Much of what we write is, at best, educated conjecture.
The paper also struggles against a space limit. We wrote 20,000 words, far from the 250,000 or so we would need to address some issues in more detail (if I had the time and resources to hide away for a year, I could do that, but not now). That means some ideas are only sketched.
Nonetheless, we emphasize several important points.
First, fertility has fallen very fast everywhere: rich and poor countries, east and west, north and south, conservative and liberal societies, religious and non-religious societies (with the exception of the Jewish population of Israel; fertility has also collapsed among the Muslim population within the pre-1967 borders), you name it. Even in sub-Saharan Africa we see fast and unprecedented drops in fertility (alas, from a high initial level).
Second, and this is really interesting, the fertility collapse has been concentrated in poor and lower-middle-income countries much more than in rich countries. By now, income per capita and fertility are positively correlated within OECD countries. We conjecture this will hold globally in a few decades.
Third, and related to the second point, the fertility collapse has been concentrated among poor and lower-middle-income women within countries. In countries such as the U.S., the rich and highly educated now have more children than the poor and less educated.
Fourth, we document why we do not understand the data from the U.N. World Population Prospects. See, for example, Tables A.1 and A.2.
Fifth, we explain why some proposed mechanisms struggle when confronted with the data.
A more subtle point is at work here. Many commentators do not seem to understand the difference between proximate causes and ultimate causes. Yes, births might have gone down because fewer women are in long-run relationships. That is the proximate cause. But you need to explain why fewer women are in long-run relationships (the ultimate cause), and saying that they spend more years in school, to take one example, does not get us very far. Why do they spend more years in school? Once you start down the whole chain of reasoning, things become much harder than they seem.
The paper can be found here:
sas.upenn.edu/~jesusfv/Demog…
Comments always welcome!
Sean Dougherty 🌍 retweeted
.@BharatKChandar, @RuyuChen and I just released an updated version of our paper "Canaries in the Coal Mine?"
The headline is that we still don't see any widespread job displacement due to AI, but the earlier trends we identified hold up or even grow. E.g., the relative decline for young people in AI-exposed jobs widened to 19% by June 2026, from 15% in our first wave.
We also looked at changes in interest rates, remote work, the tech sector boom and bust and remote work, but none of them seem to explain the effects we see for AI-exposed jobs.
Bharat has a great thread below with more detial. It ends with links to the new paper and to a short blog post summarizing what's new.
I'd love to hear what you think.
Sean Dougherty 🌍 retweeted
Defence spending is rising fast, but its effects aren’t only national. 💸
New OECD #NFR study on what higher defence outlays mean for subnational governments: local spillovers, revenue effects, spending pressures & intergovernmental coordination. ⚖️
👉🏼 oe.cd/FFwp52
Sean Dougherty 🌍 retweeted
Everyone from Weber to Mokyr puts culture at the center of the rise of the West. But nobody has had a long-run cultural series you could drop into a growth model.
So I built one: LLMs read 23,000 books from the Western canon, scoring what each endorses.
Year 0–1920, one chart:
Sean Dougherty 🌍 retweeted
Very interesting that FT publishes this graph--everyone with even superficial knowledge of the data knows it is misleading or just plain wrong. @johnvanreenen
The economic footprint of Europe’s defence build-up
@Luizdemello2, Ines Dezcallar @oecdeconomy, @econecho
ow.ly/CaRw50ZkxkL
What counts as a “local tax” when tax rates, bases or tax-sharing arrangements are shaped by higher-level governments?
A 🆕OECD Fiscal Network paper revisits local tax attribution, fiscal decentralisation and effective local taxing power.
Read more🔗brnw.ch/21x3QCM
Sean Dougherty 🌍 retweeted
Dear followers,
Please see this new article from @MITSloan on pro-worker AI, which draws from my recent paper with David Autor and Simon Johnson for @BrookingsInst
mitsloan.mit.edu/ideas-made-…
Defence spending is rising fast, but its effects aren’t only national. 💸
New OECD #NFR study on what higher defence outlays mean for subnational governments: local spillovers, revenue effects, spending pressures & intergovernmental coordination. ⚖️
👉🏼 oe.cd/FFwp52
Sean Dougherty 🌍 retweeted
I will streamline the sources to help anyone who wants to go down this rabbit hole. Maybe yo u can give it to your (smart, not dumb!) LLM and make it a nice summary- place it below if you do and I will RT).
1. Two Europes post with @OlivierKooi : Core Europe is diverging from US, East is converging, and the war is helping a reformist reprioritization that will expand the gap between North and East and Core and South:
siliconcontinent.com/p/the-t…
2. @paulkrugman "Is Europe in economic decline?" paulkrugman.substack.com/p/i… plus his transparent model note, which he calls incomprehensible but is in fact clear and helpful for economists. paulkrugman.substack.com/p/m…. Key point: everyone in Europe shares in the gains from the IT revolution through lower prices, so Europe should not panic. "Don't worry, be happy". (My words, not his.)
3. Our reply (with @pietergaricano) "European Stagnation is real": tech-based returns to capital--spread through in 401Ks and reaching mostly US citizens and institutions, and agglomeration economies (centered in SV/Austin etc) benefit US disproportionately and set up an unequal future. Krugman pushes the walking around test, we argue do the driving around test and you will see: siliconcontinent.com/p/europ…
4. Krugman's response to us argues standard productivity growth does not mean what people think for cross-country welfare comparisons, and that PPP/current-price comparisons do not show a widening gap. paulkrugman.substack.com/p/c…
5. Our response, in Proj Syn, with @Ph_Aghion and @a_bergeaud (I link the one today, since it is ungated and contains the postscript rejoinder): Main point. chained PPPs are misleading for growth comparisons and the fact they do not show a growing gap is not meaningful. The flat line Krugman sees as parity is the change in the measuring stick, not a convergence of the economies. siliconcontinent.com/p/the-m…
6. @paulkrugman response yesterday, basically agreeing that productivity growth diverges, but with the points in my main tweet above, and the agreements and disagreements we summarized:
paulkrugman.substack.com/p/e…
A lot of what follows is gated, so harder to follow:
@wsj @josephsternberg: Europeans may wish to choose welfare over growth, but at least politicians and analysts need to acknowledge the tradeoff --and voters need to be told there is one!
wsj.com/opinion/europe-can-b…
@washingtonpost @asymmetricinfo takes the driving around test and argues that inherited urban beauty can make Europe look richer on foot, while US abundance shows up more in space, housing, appliances, suburbs, and private consumption washingtonpost.com/opinions/…
@MESandbu argues to some extent all measures are wrong, and we are talking past each other, but we are both equally right and wrong: ft.com/content/8bdb63a2-b205…
@Noahpinion noahpinion.blog/p/yes-europe… argues pleasent stagnation will not cut it in the current world, particularly given geopolitical environment.
Sean Dougherty 🌍 retweeted
📢 Public finances in OECD countries face mounting challenges.
With high public debt and rising spending demands, stronger budget institutions and better public understanding are key to ensuring fiscal sustainability.
See the report: oecd.org/en/publications/res… #PublicFinances
Sean Dougherty 🌍 retweeted
Live today: the OECD Forum on Restoring Public Finances
Experts and policymakers will discuss how to strengthen public finances while building public understanding and support for reforms.
Watch live: brnw.ch/21x2R0N
Sean Dougherty 🌍 retweeted
A post about Pope Leo XIV's encyclical on AI. Why the Pope is right, but perhaps not right enough.
Artificial intelligence is reshaping the world in front of our eyes: how we communicate, how we access information, how we work, how income and status are distributed among us, and soon how we fight and kill each other. Yet the public conversation about AI remains stuck on the minutiae of competition between labs, or on a false dichotomy between AI as a “stochastic parrot” with no real capabilities and AI as an alien superintelligence poised to take command of humanity.
The more important questions are about what we want from AI, and whether our current mindset, institutions, and control mechanisms are equal to the task of steering it toward our welfare.
It is refreshing, then, that a bold and powerful voice has weighed into this debate: Pope Leo XIV. As an economist who has long argued that technology is a matter of choice rather than fate, I find Leo’s intervention welcome and, on most points, on target. But on the most consequential question of what AI should actually be designed to do, Leo stops short.
Secular readers may bristle at the encyclical’s opening invocation of the Tower of Babel. They would be mistaken to stop reading there. Leo goes much further than most pundits, journalists and policymakers in the United States by recognizing that what happens to AI, and hence to humanity, is a under our control. There are multiple possible paths for AI, and which one we take will have sweeping consequences. He is also ahead of many commentators when he writes forcefully and unequivocally that “technology is never neutral, because it takes on the characteristics of those who devise, finance, regulate, and use it.”
These were the central themes of the book I wrote with Simon Johnson, Power and Progress: Our Thousand-Year Struggle over Technology and Prosperity. It is heartening to hear them taken up by a voice with Leo's reach.
The Pope is also right to question the current trajectory of AI in warfare and law enforcement. What was taboo only a few years ago – AI-driven mass surveillance, algorithms selecting targets for killing – has become routine. Many in Silicon Valley are now calling openly for a new military-algorithmic complex centered on AI as an instrument of American hard power. Leo captures something deep and too often ignored: “Any technology that facilitates attacks without seeing the face of human beings lowers the moral threshold of conflict.”
His call for the “disarmament of AI” follows directly from these observations. As he explains, disarming AI means “freeing it from the mentality of ‘armed’ competition, which today is not limited simply to the military context, but is also an economic and cognitive phenomenon.” His moral clarity in stating that “there is no algorithm that can make war morally acceptable” should be a warning to technologists rushing to design new weapons of mass destruction.
Underneath these specific concerns lies a more fundamental claim: that what is technically feasible is not the same as what is good for humanity, and that the difference depends on who controls the technology and what ideology and interests guide them.
Leo edges toward what I take to be the most important point about AI's future when he observes that “while AI promises to boost productivity by taking over mundane tasks, it frequently forces workers to adapt to the speed and demands of machines, rather than designing machines to work with those who work.”
But here he does not go far enough. He stops short of questioning the prevailing design philosophy of AI itself: a philosophy centered on mimicking human capabilities and automating human tasks, with the ultimate goal of artificial general intelligence (AGI) that can do everything a person can.
This philosophy rests on a mistake. It assumes that artificial intelligence and humanintelligence are fundamentally similar, and therefore machines should naturally take over whatever humans currently do. Yet these intelligences are fundamentally different.
Humans are “one-shot” learners. We form hypotheses from a few examples, mentally simulate possibilities, and refine our understanding through a social process of trial and error. This is how children learn language - imitating a few words, generalizing, and adjusting based on how others respond. We are not, however, very good at absorbing massive volumes of information or sifting through unstructured data for relevant patterns.
AI models are almost the opposite. They thrive on enormous training sets and excel at pattern recognition at scale. But they have, as yet, no genuine creativity, no real-world embodiment, and no capacity for trial-and-error learning grounded in interaction with the physical and social world.
When two things are different – you shouldn’t, and typically you couldn’t – use one to mimic the other. If you did, you would end up with suboptimal, disappointing results. It would have been a colossal mistake, and the Chicago Bulls’s legendary coach Phil Jackson would have gone down in the annals of basketball as one of the worst coaches in history, if he decided in the 1990s that because Michael Jordan was the better player, Jordan should mimic everything that Scottie Pippen and Dennis Rodman were doing in the team. The team went from championship to championship because these players worked together and complemented each other.
The same applies to AI and human skills.
The more productive path is complementarity – using AI to do what humans cannot, so that humans can do what they do best. An electrician aided by AI diagnostics, a nurse supported by AI in interpreting symptoms, a teacher using AI to personalize instruction for each student; these are the contours of a different AI future, one that raises rather than displaces human capability.
Optimists and industry insiders will respond that automation-first AI can still benefit everyone, provided redistributive policy keeps pace. But this argument has a poor track record. Forty years of digital automation have already concentrated gains at the top, hollowed out middle-skill work, and produced disappointing aggregate productivity growth. There is little reason to expect that an even more powerful round of automation, deployed by even more concentrated firms, will end differently. We can and must demand a different design.
The global stakes from the future of AI are even larger than those we can see around us in the United States. For the developing world, where billions still depend on the prospect of decent jobs as a path out of poverty, an automation-centric AI agenda is not merely suboptimal. It is simply transferring to foreclose the most important route to broad-based prosperity.
The biggest failing of today's AI industry is its refusal to recognize any of this. It is guided instead by an ideology of control (the industry’s own over humanity) and by a conviction that machines are uniformly better than humans.
As Leo rightly notes, this failure is enabled by the fact that a handful of companies now command the future of AI.
What we need is a combination of moral clarity and a serious, society-wide debate about what AI can do and what we want it to do. That debate must move beyond exhortation toward concrete choices: antitrust action against the dominant platforms, public investment in human-complementary AI, regulation of surveillance and autonomous weapons, and meaningful rights for workers and citizens over the data on which these systems are built.
The Pope's intervention makes such a debate a little more likely today than it was before.
It is now up to the rest of us to carry it further than he was willing to go.

































