The Effects of Political Competition on the Funding and Generosity of Public-Sector Pension Plans
In politically competitive jurisdictions, there can be strong electoral incentives to underfund public pensions in order to keep current taxes low. I examine this hypothesis using panel data for 2,000 municipal pension plans from Pennsylvania. The results suggest that as a municipality becomes more politically competitive, it tends to have pension plans that are less funded, more generous, and use higher interest rates at which to discount future actuarial liabilities. An increase in the level of political competition by one standard deviation leads to a decline in the actuarial funded ratio of about 7â10 percent, an increase in the annual average retirement benefits of about $470â620 per retiree, and an increase in the interest rate for discounting actuarial liabilities of about 5 basis points. Instrumental Variable (IV) estimates generated using demographic characteristics of the population as instruments corroborate these findings.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jeffrey R. Brown & David W. Wilcox, 2009. "Discounting State and Local Pension Liabilities," American Economic Review, American Economic Association, vol. 99(2), pages 538-42, May.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002.
"How Much Should We Trust Differences-in-Differences Estimates?,"
NBER Working Papers
8841, National Bureau of Economic Research, Inc.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
- Munnell, Alicia H. & Aubry, Jean-Pierre & Quinby, Laura, 2011.
"Public pension funding in practice,"
Journal of Pension Economics and Finance,
Cambridge University Press, vol. 10(02), pages 247-268, April.
- Bracco, Emanuele & Porcelli, Francesco & Redoano, Michela, 2013.
"Political Competition, Tax Salience and Accountability: Theory and Some Evidence from Italy,"
CAGE Online Working Paper Series
126, Competitive Advantage in the Global Economy (CAGE).
- Emanuele Bracco & Francesco Porcelli & Michela Redoano, 2013. "Political Competition, Tax Salience and Accountability: Theory and Some Evidence from Italy," CESifo Working Paper Series 4167, CESifo Group Munich.
- Inman, Robert P., 1982. "Public employee pensions and the local labor budget," Journal of Public Economics, Elsevier, vol. 19(1), pages 49-71, October.
- Giertz, J. Fred & Papke, Leslie E., 2007. "Public Pension Plans: Myths and Realities for State Budgets," National Tax Journal, National Tax Association, vol. 60(2), pages 305-23, June.
- Gergely Ujhelyi, 2014.
"Civil Service Rules and Policy Choices: Evidence from US State Governments,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 6(2), pages 338-80, May.
- Gergely Ujhelyi, 2013. "Civil Service Rules and Policy Choices: Evidence from US State Governments," Working Papers 201303249, Department of Economics, University of Houston.
- Mumy, Gene E, 1978. "The Economics of Local Government Pensions and Pension Funding," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 517-27, June.
- Robert Novy‐Marx & Joshua Rauh, 2011. "Public Pension Promises: How Big Are They and What Are They Worth?," Journal of Finance, American Finance Association, vol. 66(4), pages 1211-1249, 08.
- Dennis Epple & Katherine Schipper, 1981. "Municipal pension funding: A theory and some evidence," Public Choice, Springer, vol. 37(1), pages 141-178, January.
When requesting a correction, please mention this item's handle: RePEc:jmp:jm2013:pba941. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.