Working Paper: NBER ID: w29405
Authors: Darren Aiello; Asaf Bernstein; Mahyar Kargar; Ryan Lewis; Michael Schwert
Abstract: We study effects of state pension windfalls on property prices near state borders, where theory suggests real estate reflects the value of additional public resources. Windfalls have grown to half the size of total state tax revenues and provide plausibly well-identified variation in fiscal conditions. We find one dollar of exogenous variation in pension asset returns increases border house prices by approximately two dollars. These estimates suggest governments, rather than wasting incremental resources, allocate additional funds towards high value projects or tax abatement. Evidence of larger effects in financially constrained municipalities highlight how fiscal resources amplify welfare effects of economic shocks.
Keywords: public pension wealth; property prices; fiscal conditions; economic shocks; marginal value of public wealth
JEL Codes: H41; H55; H74; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Pension fund performance (G23) | Exogenous variation in public wealth and spending (H19) |
| Pension fund returns (G23) | Efficient allocation of additional funds in financially constrained municipalities (H72) |
| Marginal public funds utilization (H49) | Higher house prices (R31) |
| Exogenous variation in pension asset returns (H55) | Border house prices (R31) |
| Increases in pension fund returns (G23) | Higher house prices (R31) |