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  3. American Economic Journal: Macroeconomics
  4. July 2018
  5. The Political Economy of Municipal Pension Funding

The Political Economy of Municipal Pension Funding

  • Jeffrey Brinkman
  • Daniele Coen-Pirani
  • Holger Sieg
American Economic Journal: Macroeconomics
vol. 10, no. 3, July 2018
(pp. 215-46)
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Abstract

Many US municipalities have committed to pay retirement benefits to public sector employees but have not saved enough to fulfill these obligations. This paper studies the determinants of municipal pension funding and its implications for intergenerational redistribution using an overlapping generations model. Under perfect capital markets, pension funding choices are fully capitalized into land prices. This neutrality result fails if agents face a binding downpayment constraint in the land market: old agents prefer a pay-as-you-go system, while young agents find a fully funded system optimal. Empirical evidence based on cross-city comparisons of pension liabilities is consistent with these predictions.

Citation

Brinkman, Jeffrey, Daniele Coen-Pirani, and Holger Sieg. 2018. "The Political Economy of Municipal Pension Funding." American Economic Journal: Macroeconomics, 10 (3): 215-46. DOI: 10.1257/mac.20160400

Additional Materials

JEL Classification

  • H72 State and Local Budget and Expenditures
  • H75 State and Local Government: Health; Education; Welfare; Public Pensions
  • J32 Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
  • J45 Public Sector Labor Markets
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