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The Economic Burden of Pension Shortfalls: Evidence from House Prices

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Listed:
  • Darren Aiello
  • Asaf Bernstein
  • Mahyar Kargar
  • Ryan Lewis
  • Michael Schwert

Abstract

U.S. state pensions are underfunded by trillions of dollars, but their economic burden is unclear. In a model of inefficient taxation, real estate fully reflects the cost of pension shortfalls when it is the only form of immobile capital. We study the effect of pension shortfalls on real estate values at state borders, where labor and physical capital could more easily relocate to a state with a smaller shortfall. Using plausibly exogenous variation driven by pension asset returns, we find that one dollar of pension underfunding reduces house prices near state borders by approximately two dollars. Our estimates imply a deadweight loss associated with addressing pension shortfalls that is consistent with prior research in settings with high returns to public spending and costs of taxation.

Suggested Citation

  • Darren Aiello & Asaf Bernstein & Mahyar Kargar & Ryan Lewis & Michael Schwert, 2021. "The Economic Burden of Pension Shortfalls: Evidence from House Prices," NBER Working Papers 29405, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29405
    Note: AG AP CF PE POL
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    More about this item

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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