Chuck Boyer, Chicago Booth PhD Student
I plan to characterize the relationship between U.S. state government fiscal conditions, pension liabilities, and state government bond yields. My findings will quantify the extent to which governments are already paying for underfunded pensions in the form of higher borrowing costs, and default risk. Moreover, I will explore the political economy of state government debt. Currently, many researchers argue that public pension liabilities are "senior" to bonded debt. However, municipal defaults such as those in Detroit suggest that default is likely to be a more nuanced negotiation process between pensioners and creditors. Using data from municipal bond issues along with data I have already collected on state government balance sheets and political conditions (union membership concentration, for example), I hope to investigate whether or not markets perceive pension liabilities as senior debt, and quantify how that depends on the relative bargaining power of pension holders vs. creditors.