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Artificial intelligence and local debt: Evidence from five OECD bond markets

Author

Listed:
  • Sean Dougherty
  • Christos Makridis

Abstract

This paper examines whether local investments in artificial intelligence (AI) improve subnational borrowing terms in an international setting. Building on U.S. evidence that AI-intensive countries experience lower municipal bond yields and stronger local fiscal capacity, the analysis is extended to five OECD countries: Belgium, Canada, Germany, Spain and Sweden. Vacancy data from Lightcast are used to measure the AI share of job postings at comparable subnational geographies and to link these measures to municipal and regional bond outcomes. Expansions of the AI share of jobs are found to be associated with increases rather than decreases, in bond yields. These results point to challenges that many OECD economies may face in financing the development of new digital infrastructure in the emerging AI economy.

Suggested Citation

  • Sean Dougherty & Christos Makridis, 2026. "Artificial intelligence and local debt: Evidence from five OECD bond markets," OECD Working Papers on Fiscal Federalism 51, OECD Publishing.
    • Handle: RePEc:oec:ctpaab:51-en
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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