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Implicit Debt Capitalization in Local Housing Prices: An Example of Unfunded Pension Liabilities

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  • Robert C. MacKay

Abstract

I analyze the response of individual housing sales prices to negative information or “news” about local public debt levels and their underlying impact on the provision of public goods and services. In February 2004, it was announced that rising levels of unfunded liabilities for the San Diego City Employees’ Retirement System (SDCERS) were higher than previously perceived. Comparing the sales of homes on both sides of the city boundary before and after the shock occurred, I find the “news” led to a 2.5–3.7 percent decrease in housing sales prices in San Diego City over the four years following the announcement. This result implies overcapitalization of the unfunded pension liabilities, where the impact on home values is greater than the residents’ financial burden from the unfunded liabilities.

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  • Robert C. MacKay, 2014. "Implicit Debt Capitalization in Local Housing Prices: An Example of Unfunded Pension Liabilities," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(1), pages 77-112, March.
  • Handle: RePEc:ntj:journl:v:67:y:2014:i:1:p:77-112
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    References listed on IDEAS

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    1. Hilber, Christian A.L. & Mayer, Christopher, 2009. "Why do households without children support local public schools? Linking house price capitalization to school spending," Journal of Urban Economics, Elsevier, vol. 65(1), pages 74-90, January.
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    6. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    7. Eichenberger Reiner & Stadelmann David, 2010. "How Federalism Protects Future Generations from Today's Public Debts," Review of Law & Economics, De Gruyter, vol. 6(3), pages 395-420, December.
    8. Inman, Robert P., 1982. "Public employee pensions and the local labor budget," Journal of Public Economics, Elsevier, vol. 19(1), pages 49-71, October.
    9. David Stadelmann, 2012. "Consequences of Debt Capitalization: Property Ownership and Debt versus Tax Choice," Southern Economic Journal, Southern Economic Association, vol. 78(3), pages 976-998, January.
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    Cited by:

    1. Glaeser, Edward L. & Ponzetto, Giacomo A.M., 2014. "Shrouded costs of government: The political economy of state and local public pensions," Journal of Public Economics, Elsevier, vol. 116(C), pages 89-105.
    2. repec:bla:pbudge:v:37:y:2017:i:2:p:102-124 is not listed on IDEAS

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