Electoral incentives and Public Employees’ Retirement Systems in Brazilian municipalities

This paper tests whether Brazilian mayors manipulate the funding policies of Public Employees’ Retirement Systems (PERS) owing to electoral motivations, using an unexplored dataset containing the statements of contributions prepared by municipal governments that we match to four nationwide elections. In Brazil, PERS are active in more than 2000 municipalities and must collect contributions from public-sector employees and local governments to meet their defined benefit promises. The institutional context provides variation in both reelection incentives and the funding of PERS that allows for credible estimation: term limits and close races generate exogenous variation in incentives, and the large increases in contribution rates mandated by a national pension reform, implemented by municipalities with different lags, provide the necessary variation in the funding practices. Overall, the regression discontinuity estimates support the hypothesis that mayors seeking reelection in competitive environments reduce the flows of funding to municipal PERS. Moreover, the results confirm the notion that while politicians have benefited from the changing legislation and a lack of supervision in the past, less room for strategic maneuvering has been open recently.