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The effects of political competition on the funding of public‐sector pension plans

Sutirtha Bagchi ()

Financial Management, 2021, vol. 50, issue 3, 691-725

Abstract: In politically competitive jurisdictions, there can be strong electoral incentives to underfund public pensions in order to keep current taxes low. I examine this hypothesis using panel data for over 2,000 local pension plans from Pennsylvania spanning the period 1985–2017. The results suggest that more politically competitive municipalities tend to have pension plans that are less funded. The effects of political competition are driven by municipalities that have a higher proportion of uninformed voters and are absent for pension plans offered by municipal authorities. The negative relationship between political competition and funding status is present for state pensions as well.

Date: 2021
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Handle: RePEc:bla:finmgt:v:50:y:2021:i:3:p:691-725