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The Political Economy of Municipal Pension Funding

Author

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

Abstract

Many US municipalities have committed to pay retirement benefits to public sector employees but have not saved enough to fulfill these obligations. This paper studies the determinants of municipal pension funding and its implications for intergenerational redistribution using an overlapping generations model. Under perfect capital markets, pension funding choices are fully capitalized into land prices. This neutrality result fails if agents face a binding downpayment constraint in the land market: old agents prefer a pay-as-you-go system, while young agents find a fully funded system optimal. Empirical evidence based on cross-city comparisons of pension liabilities is consistent with these predictions.

Suggested Citation

  • Jeffrey Brinkman & Daniele Coen-Pirani & Holger Sieg, 2018. "The Political Economy of Municipal Pension Funding," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 215-246, July.
    • Handle: RePEc:aea:aejmac:v:10:y:2018:i:3:p:215-46
    Note: DOI: 10.1257/mac.20160400
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    Citations

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    Cited by:

    1. Davide Bazzana, 2020. "Ageing population and pension system sustainability: reforms and redistributive implications," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 971-992, October.
    2. David G. McCarthy & Po‐Lin Wang, 2022. "Wait your turn: Pension incentives, workplace rules, and labor supply among Philadelphia municipal workers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(4), pages 985-1029, December.
    3. Barseghyan, Levon & Coate, Stephen, 2021. "Community development by public wealth accumulation," Journal of Urban Economics, Elsevier, vol. 121(C).
    4. Marco Bassetto & Leslie McGranahan, 2021. "Mobility, Population Growth, and Public Capital Spending in the United States," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 255-277, July.
    5. Christian Dippel, 2019. "Political Parties Do Matter in U.S. Cities ... For Their Unfunded Pensions," NBER Working Papers 25601, National Bureau of Economic Research, Inc.
    6. Davis, Matthew & Ferreira, Fernando, 2022. "Housing disease and public school finances," Economics of Education Review, Elsevier, vol. 88(C).
    7. Christian Dippel, 2022. "Political Parties Do Matter in US Cities . . . for Their Unfunded Pensions," American Economic Journal: Economic Policy, American Economic Association, vol. 14(3), pages 33-54, August.

    More about this item

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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