Shrouded Costs of Government: Political Economy of State and Local Public Pensions Data

Edward L. Glaeser and Giacomo Ponzetto

No 660, Working Papers from Barcelona School of Economics

Abstract: Why do public-sector workers receive so much of their compensation in the form of pensions and other benefits? This paper presents a political economy model in which politicians compete for taxpayers' 'and government employees' votes by promising compensation packages, but some voters cannot evaluate every aspect of promised compensation. If pension packages are "shrouded," so that public-sector workers better understand their value than ordinary taxpayers, then compensation will be highly back-loaded. In equilibrium, the welfare of public-sector workers could be improved, holding total public-sector costs constant, if they received higher wages and lower pensions. Centralizing pension determination has two off-setting effects on generosity: more state-level media attention helps taxpayers better understand pension costs, and that reduces pension generosity; but a larger share of public-sector workers will vote within the jurisdiction, which increases pension generosity. A short discussion of pensions in two decentralized states (California and Pennsylvania) and two centralized states (Massachusetts and Ohio) suggests that centralization appears to have modestly reduced pensions, but, as the model suggests, this is unlikely to be universal.

Keywords: imperfect information; elections; public pensions; state and local government; public sector unions (search for similar items in EconPapers)
JEL-codes: D72 D83 H75 H77 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-age and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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