Working Paper: NBER ID: w2166
Authors: Robert P. Inman; David J. Albright
Abstract: The recent debt crises in New York City and Cleveland, the deterioration of public infra-structures in certain of our states and larger cities, and the occasional bankruptcy of smaller pension plans suggest that not all of local finance stands on a sound fiscal base. This paper examines the trends in funding for one form of state and local government debt--teacher pensions underfundings -- and asks what a central government might do to check any unwanted growth in these liabilities. The analysis concludes (i) that this form of state-local debt is sizeable and growing, (ii) that state and local governments have an implicit pay-as-you-go bias in pension financing which encourages the growth of debt, but (iii) central government benefit and funding regulations or debt relief policies can slow, or even reverse, that growth.
Keywords: teacher pensions; local debt; public finance; pension underfunding
JEL Codes: H74; H75
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local fiscal competition (H73) | teacher pension underfunding (H55) |
| regulating spending or taxes (H59) | growth of local debt (H74) |
| pension underfunding (H55) | adverse effects on private savings (D14) |
| pension underfunding (H55) | adverse effects on public service provision (H40) |
| pension funding strategies (H55) | public debt (H63) |
| regulatory interventions (G18) | pension underfunding (H55) |