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Do public pension obligations affect state funding costs?

Author

Listed:
  • Jean Burson
  • John B. Carlson
  • O. Emre Ergungor
  • Patricia Waiwood

Abstract

States? unfunded pension obligations to their current and retired employees have exploded in recent years to levels that are estimated to be between $750 billion and $4.4 trillion. In theory, this massive debt should have implications for states? ability to meet their financial obligations and a measurable impact on funding costs. Yet, we find no evidence that municipal bond markets are pricing the risks to states? fiscal health arising from these large obligations.

Suggested Citation

  • Jean Burson & John B. Carlson & O. Emre Ergungor & Patricia Waiwood, 2013. "Do public pension obligations affect state funding costs?," Working Papers (Old Series) 1301, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1301
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    References listed on IDEAS

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    1. Robert Novy-Marx & Joshua D. Rauh, 2012. "Fiscal Imbalances and Borrowing Costs: Evidence from State Investment Losses," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 182-213, May.
    2. Amy B. Monahan, 2010. "Public Pension Plan Reform: The Legal Framework," Education Finance and Policy, MIT Press, vol. 5(4), pages 617-646, October.
    3. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
    4. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    5. Alicia H. Munnell & Jean-Pierre Aubry & Laura Quinby, 2011. "The Impact of Pensions on State Borrowing Costs," State and Local Pension Plans Briefs ibslp14, Center for Retirement Research, revised Feb 2011.
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    Cited by:

    1. Byron Lutz & Louise Sheiner, 2014. "The Fiscal Stress Arising from State and Local Retiree Health Obligations," NBER Working Papers 19779, National Bureau of Economic Research, Inc.

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