The Political Economy of Underfunded Municipal Pension Plans

Download or read book The Political Economy of Underfunded Municipal Pension Plans written by Jeffrey Brinkman and published by . This book was released on 2016 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the determinants of underfunding of local government's pension funds using a politico-economic overlapping generations model. We show that a binding downpayment constraint in the housing market dampens capitalization of future taxes into current land prices. Thus, a local government's pension funding policy matters for land prices and the utility of young households. Underfunding arises in equilibrium if the pension funding policy is set by the old generation. Young households instead favor a policy of full funding. Empirical results based on cross-city comparisons in the magnitude of unfunded liabilities are consistent with the predictions of the model.