Economic Consequences of Public Pension Underfunding Transparency: Evidence from Housing Market and Local Economics

Abstract

This paper sheds light on the mechanisms through which state pension underfunding influences local housing markets and economies. Using both a contiguous border-county approach and a single state study in California, I find that recent pension reporting regulation changes that enhance the transparency and salience of governments’ pension underfunding status led to lower growth in local housing prices. Such effect is stronger in states that are more strongly impacted by the regulation changes, and the media plays an important role in disseminating the information. Other local economic variables, including new building permits, business activities, and public employment outcomes, are also negatively impacted when pension underfunding is revealed.