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The political economy of unfunded public pension liabilities

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  • Dashle Kelley

Abstract

This paper applies a public choice approach to the problem of unfunded pension liabilities and adopts the methodology of Congleton and Shughart ( 1990 ) to model underfunding of state-level public pension plans using the median voter theorem, along with the theory of “capture” by special interest groups, and a combined model of the two. With panel data from 2001 to 2009, the paper finds that the combined model provides the strongest explanation for the current levels of unfunded liabilities; hence, both median voter preferences and special interest group influence are affecting political outcomes. The special interest group model slightly outperforms the median voter model in direct comparisons. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Dashle Kelley, 2014. "The political economy of unfunded public pension liabilities," Public Choice, Springer, vol. 158(1), pages 21-38, January.
    • Handle: RePEc:kap:pubcho:v:158:y:2014:i:1:p:21-38
    DOI: 10.1007/s11127-012-0049-3
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    Cited by:

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    2. Beetsma, Roel & Komada, Oliwia & Makarski, Krzysztof & Tyrowicz, Joanna, 2021. "The political (in)stability of funded social security," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    3. Gang Chen & David S. T. Matkin, 2017. "Actuarial Inputs and the Valuation Of Public Pension Liabilities and Contribution Requirements: A Simulation Approach," Public Budgeting & Finance, Wiley Blackwell, vol. 37(1), pages 68-87, March.
    4. Barth, James R. & Bolden, Nicholas & Joo, Sunghoon & Hilliard, Jitka, 2017. "Do Political Parties Matter for the Funding Status of State Pension Plans?," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 48(3), November.
    5. Christian Dippel, 2019. "Political Parties Do Matter in U.S. Cities ... For Their Unfunded Pensions," NBER Working Papers 25601, National Bureau of Economic Research, Inc.
    6. Kenechukwu E. Anadu & James Bohn & Lina Lu & Matthew Pritsker & Andrei Zlate, 2019. "Reach for Yield by U.S. Public Pension Funds," Supervisory Research and Analysis Working Papers RPA 19-2, Federal Reserve Bank of Boston.
    7. Carlos Vidal-Meliá & Manuel Ventura-Marco & Juan Manuel Pérez-Salamero González, 2018. "Actuarial accounting for a notional defined contribution scheme combining retirement and longterm care benefits," Documentos de Trabajo del ICAE 2018-16, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    8. Trang Hoang & Craig S. Maher, 2022. "Fiscal condition, institutional constraints, and public pension contribution: are pension contribution shortfalls fiscal illusion?," Public Budgeting & Finance, Wiley Blackwell, vol. 42(4), pages 93-124, December.
    9. Bagchi, Sutirtha & Naughton, James P., 2021. "Public-sector pension plans and the discount rate assumption: The role of political incentives," Economics Letters, Elsevier, vol. 204(C).
    10. Roberto Basile & Valerio Filoso, 2018. "The market value of political partisanship: Quasi‐experimental evidence from municipal elections," Papers in Regional Science, Wiley Blackwell, vol. 97(S1), pages 193-209, March.
    11. John A. Dove & Courtney A. Collins & Daniel J. Smith, 2018. "The impact of public pension board of trustee composition on state bond ratings," Economics of Governance, Springer, vol. 19(1), pages 51-73, February.
    12. Bernardo P. Schettini & Rafael Terra, 2020. "Electoral incentives and Public Employees’ Retirement Systems in Brazilian municipalities," Public Choice, Springer, vol. 184(1), pages 79-103, July.

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