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U.S. municipal yields and unfunded state pension liabilities

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  • Beetsma, Roel
  • Lekniute, Zina
  • Ponds, Eduard

Abstract

We present empirical evidence that municipal bond yields are increasing in the pension debt towards U.S. state civil servants. However, positive yield effects of both pension and explicit debt are found only for the period since the start of the crisis, suggesting that the crisis triggered awareness of budgetary sustainability. The marginal yield effect of higher pension debt is smaller than that of higher explicit debt, but still economically meaningful. The effect of higher pension debt seems stronger when using market values of pension assets than actuarial values, suggesting that investors pay more attention to market values.

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  • Beetsma, Roel & Lekniute, Zina & Ponds, Eduard, 2017. "U.S. municipal yields and unfunded state pension liabilities," CEPR Discussion Papers 11998, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11998
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    3. Mark J. Garmaise & Gabriel Natividad, 2024. "Fiscal windfalls and entrepreneurship: fostering entry or promoting incumbents?," Small Business Economics, Springer, vol. 62(1), pages 133-158, January.

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    More about this item

    Keywords

    Civil servants pension funds; Underfunding; Explicit debt; Implicit debt; Municipal yields; Unfunded pension liabilities; Market values; Actuarial values;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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