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Political Effects on Pension Underfunding

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  • Erick M. Elder
  • Gary A. Wagner

Abstract

type="main" xml:id="ecpo12048-abs-0001"> Pension underfunding in the public sector has received considerable attention recently and is often cited as the next looming crisis. The majority of recent research has focused on appropriately measuring the underfunding. In this paper, we employ a political economy framework to show that increases in partisan polarization and electoral uncertainty lead to greater underfunding. Using an unbalanced panel of individual pension plans, we find robust empirical evidence that higher legislative turnover rates, more electoral competition, and term limits all lead to more pension underfunding. The political environments of state and local governments play a pivotal role in pension underfunding.

Suggested Citation

  • Erick M. Elder & Gary A. Wagner, 2015. "Political Effects on Pension Underfunding," Economics and Politics, Wiley Blackwell, vol. 27(1), pages 1-27, March.
    • Handle: RePEc:bla:ecopol:v:27:y:2015:i:1:p:1-27
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    File URL: http://hdl.handle.net/10.1111/ecpo.2015.27.issue-1
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    Cited by:

    1. James R. Barth & Sunghoon Joo & Kang Bok Lee, 2018. "Another look at the determinants of the financial condition of state pension plans," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(3), pages 421-450, July.
    2. Sutirtha Bagchi, 2021. "The effects of political competition on the funding of public‐sector pension plans," Financial Management, Financial Management Association International, vol. 50(3), pages 691-725, September.
    3. Asako Yasushi & Matsubayashi Tetsuya & Ueda Michiko, 2016. "Legislative Term Limits and Government Spending: Theory and Evidence from the United States," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1501-1538, September.
    4. Bagchi, Sutirtha & Naughton, James P., 2021. "Public-sector pension plans and the discount rate assumption: The role of political incentives," Economics Letters, Elsevier, vol. 204(C).

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