Public-sector pension plans and the discount rate assumption: The role of political incentives

Sutirtha Bagchi and James P. Naughton

Economics Letters, 2021, vol. 204, issue C

Abstract: We provide evidence that political pressure creates incentives for defined benefit pension plans to use higher discount rates, thus artificially reducing the reported cost of these benefit promises. We generate our inferences using a unique panel dataset for all local pension plans from Pennsylvania for 2003–2013, and by comparing the differential response of plans managed by appointed versus elected officials during a period where there was downward pressure on expected investment returns. The differential response we document is 29 basis points, which equates to a reduction in the reported liability of approximately 4.1% due to political incentives.

Keywords: Public-sector pensions; Defined benefit pensions; Discount rate; Municipal authorities (search for similar items in EconPapers)
JEL-codes: H75 H83 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176521001919
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:204:y:2021:i:c:s0165176521001919

DOI: 10.1016/j.econlet.2021.109914

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().