The Political Economy of Underfunded Municipal Pension

Jeffrey Brinkman, Daniele Coen-Pirani and Holger Sieg

No 16-16, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper analyzes the determinants of underfunding of local government?s pension funds using a politico-economic overlapping generations model. We show that a binding down payment constraint in the housing market dampens capitalization of future taxes into current land prices. Thus, a local government?s pension funding policy matters for land prices and the utility of young households. Underfunding arises in equilibrium if the pension funding policy is set by the old generation. Young households instead favor a policy of full funding. Empirical results based on cross-city comparisons in the magnitude of unfunded liabilities are consistent with the predictions of the model.

Keywords: Unfunded Liabilities; Political Economy; Land Prices; Capitalization (search for similar items in EconPapers)
JEL-codes: E6 H3 H7 R5 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2016-05-27
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac, nep-pol and nep-ure
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Citations: View citations in EconPapers (1)

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