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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
    DOI: 10.17310/ntj.2014.1.03
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    2. Banzhaf, H. Spencer & Mickey, Ryan & Patrick, Carlianne, 2021. "Age-based property tax exemptions," Journal of Urban Economics, Elsevier, vol. 121(C).
    3. Martin Micheli, 2020. "Local governments’ indebtedness and its impact on real estate prices," Urban Studies, Urban Studies Journal Limited, vol. 57(5), pages 1032-1048, April.
    4. 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.
    5. Trang Hoang, 2022. "Fiscal competition and state pension reforms," Public Budgeting & Finance, Wiley Blackwell, vol. 42(3), pages 41-70, September.
    6. 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.
    7. 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.
    8. 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.
    9. Trang Hoang & Craig S. Maher, 2022. "Fiscal condition, institutional constraints, and public pension contribution: are pension contribution shortfalls fiscal illusion?," Public Budgeting & Finance, Wiley Blackwell, vol. 42(4), pages 93-124, December.
    10. Barseghyan, Levon & Coate, Stephen, 2021. "Community development by public wealth accumulation," Journal of Urban Economics, Elsevier, vol. 121(C).
    11. Robert C. MacKay, 2017. "The Impact of Fiscal Stress on Local Government Fiscal Structures: An Event Study of the Orange County Bankruptcy," Public Budgeting & Finance, Wiley Blackwell, vol. 37(2), pages 102-124, June.

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