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The Political Economy of Underfunded Municipal Pension Plans

Author

Listed:
  • Jeffrey Brinkman
  • Daniele Coen-Pirani
  • Holger Sieg
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 downpayment 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.

Suggested Citation

  • Jeffrey Brinkman & Daniele Coen-Pirani & Holger Sieg, 2016. "The Political Economy of Underfunded Municipal Pension Plans," NBER Working Papers 22321, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22321
    Note: AG PE
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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