Political Parties Do Matter in U.S. Cities ... For Their Unfunded Pensions

This paper studies the biggest fiscal challenge currently facing many U.S. cities, namely public-sector pension obligations. Employing a regression discontinuity design (RDD), it tests whether the mayor's party impacts a city's public-sector pensions. Pension benefits are shown to grow faster under Democratic-party mayors, while contribution payments simultaneously fall behind. Previous research showed that parties do not matter in U.S. cities for a wide range of fiscal expenditure types, purportedly because voters impose fiscal discipline. This paper shows that parties can matter when expenditures benefit a narrow interest group and are difficult to observe for tax payers.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at "http://www.nber.org/papers/w25601"