U.S. Municipal Yields and Unfunded State Pension Liabilities

36 Pages Posted: 2 May 2017

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Zina Lekniute

University of Amsterdam

Eduard Ponds

Tilburg University

Date Written: April 2017

Abstract

We present empirical evidence that municipal bond yields are increasing in the pension debt towards U.S. state civil servants. However, positive yield effects of both pension and explicit debt are found only for the period since the start of the crisis, suggesting that the crisis triggered awareness of budgetary sustainability. The marginal yield effect of higher pension debt is smaller than that of higher explicit debt, but still economically meaningful. The effect of higher pension debt seems stronger when using market values of pension assets than actuarial values, suggesting that investors pay more attention to market values.

Keywords: actuarial values, civil servants pension funds, explicit debt, implicit debt, market values, municipal yields, underfunding, unfunded pension liabilities

JEL Classification: G12, H55, H74, H75

Suggested Citation

Beetsma, Roel M. W. J. and Lekniute, Zina and Ponds, Eduard, U.S. Municipal Yields and Unfunded State Pension Liabilities (April 2017). CEPR Discussion Paper No. DP11998, Available at SSRN: https://ssrn.com/abstract=2961760

Roel M. W. J. Beetsma (Contact Author)

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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Zina Lekniute

University of Amsterdam ( email )

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Eduard Ponds

Tilburg University ( email )

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Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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