This error is intentional; a function without a return may not always be void.

declare function fail(): never;
export function f() {
	fail();
}
export const g = () => {
	fail();
}

Is:

export declare function f(): void;
export declare const g: () => never;

This can't be determined without type analysis, so is disallowed under isolatedDeclarations.

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Correct error for function expressions, but not function declarations - declarations won't infer never

#58331 is indiscriminate in what it affects; if we want to allow this for function declarations only, that may be possible, but it sure seems like an extra inconsistency just to avoid writing : void (and how often do people define a noop function?).

hmm, I didn't think of never, so the function expression part is wrong. But I find it annoying to write : void for obviously clear function declarations.

Discussed and we don't want to make it untenable to, in the future, change the rules around function declaration return type inference. For example, it's maybe preferable that

function dofail() {
  Debug.fail("oops");
}

have an inferred return type of never (as it would if written as a function expression) rather than void.