The Effects of Political Competition on the Funding and Generosity of Public-Sector Pension Plans
AbstractIn 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 2,000 municipal pension plans from Pennsylvania. The results suggest that as a municipality becomes more politically competitive, it tends to have pension plans that are less funded, more generous, and use higher interest rates at which to discount future actuarial liabilities. An increase in the level of political competition by one standard deviation leads to a decline in the actuarial funded ratio of about 7â10 percent, an increase in the annual average retirement benefits of about $470â620 per retiree, and an increase in the interest rate for discounting actuarial liabilities of about 5 basis points. Instrumental Variable (IV) estimates generated using demographic characteristics of the population as instruments corroborate these findings.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Job Market Papers in its series 2013 Papers with number pba941.
Date of creation: 22 Dec 2013
Date of revision:
Contact details of provider:
Web page: http://ideas.repec.org/jmp.html
Find related papers by JEL classification:
- H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
- J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
This paper has been announced in the following NEP Reports:
- NEP-AGE-2013-12-29 (Economics of Ageing)
- NEP-ALL-2013-12-29 (All new papers)
- NEP-POL-2013-12-29 (Positive Political Economics)
- NEP-PUB-2013-12-29 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gergely Ujhelyi, 2014.
"Civil Service Rules and Policy Choices: Evidence from US State Governments,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 6(2), pages 338-80, May.
- Gergely Ujhelyi, 2013. "Civil Service Rules and Policy Choices: Evidence from US State Governments," Working Papers 201303249, Department of Economics, University of Houston.
- Robert Novy‐Marx & Joshua Rauh, 2011. "Public Pension Promises: How Big Are They and What Are They Worth?," Journal of Finance, American Finance Association, vol. 66(4), pages 1211-1249, 08.
- Munnell, Alicia H. & Aubry, Jean-Pierre & Quinby, Laura, 2011.
"Public pension funding in practice,"
Journal of Pension Economics and Finance,
Cambridge University Press, vol. 10(02), pages 247-268, April.
- Mumy, Gene E, 1978. "The Economics of Local Government Pensions and Pension Funding," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 517-27, June.
- Jeffrey R. Brown & David W. Wilcox, 2009. "Discounting State and Local Pension Liabilities," American Economic Review, American Economic Association, vol. 99(2), pages 538-42, May.
- repec:cge:warwcg:125 is not listed on IDEAS
- Emanuele Bracco & Francesco Porcelli & Michela Redoano, 2013.
"Political Competition, Tax Salience and Accountability: Theory and Some Evidence from Italy,"
CESifo Working Paper Series
4167, CESifo Group Munich.
- Bracco, Emanuele & Porcelli, Francesco & Redoano, Michela, 2013. "Political Competition, Tax Salience and Accountability: Theory and Some Evidence from Italy," CAGE Online Working Paper Series 126, Competitive Advantage in the Global Economy (CAGE).
- Inman, Robert P., 1982. "Public employee pensions and the local labor budget," Journal of Public Economics, Elsevier, vol. 19(1), pages 49-71, October.
- Dennis Epple & Katherine Schipper, 1981. "Municipal pension funding: A theory and some evidence," Public Choice, Springer, vol. 37(1), pages 141-178, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.