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Discussion Paper Details

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Title: U.S. municipal yields and unfunded state pension liabilities

Author(s): Roel Beetsma, Zina Lekniute and Eduard Ponds

Publication Date: April 2017

Keyword(s): actuarial values, civil servants pension funds, explicit debt, implicit debt, market values, municipal yields, underfunding and unfunded pension liabilities

Programme Area(s): International Macroeconomics and Finance

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.

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Bibliographic Reference

Beetsma, R, Lekniute, Z and Ponds, E. 2017. 'U.S. municipal yields and unfunded state pension liabilities'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11998