TY  - JOUR
AU  - Glaeser, Edward L
AU  - Ponzetto, Giacomo A. M
TI  - Shrouded Costs of Government: The Political Economy of State and Local Public Pensions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18976
PY  - 2013
Y2  - April 2013
DO  - 10.3386/w18976
UR  - http://www.nber.org/papers/w18976
L1  - http://www.nber.org/papers/w18976.pdf
N1  - Author contact info:
Edward L. Glaeser
Department of Economics
315A Littauer Center
Harvard University
Cambridge, MA 02138
Tel: 617/495-0575
Fax: 617/495-7730
E-Mail: eglaeser@harvard.edu

Giacomo A. M. Ponzetto
CREI, Universitat Pompeu Fabra, 
IPEG and Barcelona GSE  
C/ Ramon Trias Fargas, 25-27  
08005 Barcelona  
Spain 
E-Mail: gponzetto@crei.cat
M1  - published as Edward L. Glaeser, Giacomo A. M. Ponzetto. "Shrouded Costs of Government: The Political Economy of State and Local Public Pensions," in Robert Clark, Joshua Rauh, and Mark Duggan, editors, "Retirement Benefits for State and Local Employees: Designing Pension Plans for the Twenty-First Century" Elsevier, Journal of Public Economics, vol. 116  (2014)

AB  - Why are public-sector workers so heavily compensated with pensions and other non-pecuniary benefits? In this paper, we present a political economy model of shrouded compensation in which politicians compete for taxpayers' and public employees' votes by promising compensation packages, but some voters cannot evaluate every aspect of compensation. If pension packages are "shrouded," meaning that public-sector workers better understand their value than ordinary taxpayers, then compensation will be inefficiently back-loaded. In equilibrium, the welfare of public-sector workers could be improved, holding total public sector costs constant, if they received higher wages and lower pensions. Central control over dispersed municipal pensions has two offsetting effects on pension generosity: more state-level media attention helps taxpayers better understand pension costs, which reduces pension generosity; but a larger share of public sector workers will live within the jurisdiction, which increases pension generosity. We discuss pension arrangements in two decentralized states (California and Pennsylvania) and two centralized states (Massachusetts and Ohio) and find that in these cases, centralization appears to have modestly reduced pension arrangements; but, as the model suggests, this finding is unlikely to be universal.
ER  -