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Sunday, April 15, 2018

Public Sector Pensions Crowd Out Public Sector Investment in Capital and New Workers

The NY Times has written a very good piece about the high costs of public sector defined benefit pension plans.    Given that governments face budget constraints and have trouble raising taxes, if a local government "overpays" its retirees then there will be less $ to hire new public workers to provide essential services and there will be less $ to purchase capital (think of the low quality of New York City subway cars) that is key to providing public goods such as public transit. 

I have written three papers on this topic.

  1. Matthew E. Kahn, 2017. "Is Local Public Sector Rent Extraction Higher in Progressive Cities or High Amenity Cities?,"NBER Working Papers 23201, National Bureau of Economic Research, Inc.

Jerch, Rhiannon & Kahn, Matthew E. & Li, Shanjun, 2017. "The efficiency of local government: The role of privatization and public sector unions," Journal of Public Economics, Elsevier, vol. 154(C), pages 95-121.


Li, Shanjun & Kahn, Matthew E. & Nickelsburg, Jerry, 2015. "Public transit bus procurement: The role of energy prices, regulation and federal subsidies," Journal of Urban Economics, Elsevier, vol. 87(C), pages 57-71.

If the public sector could be more cost efficient in providing government services, would more Republicans vote in favor of higher taxes?

When Republicans oppose government spending, how much of this is due to rejecting the government's priorities (and implicit redistribution) versus how much of this opposition is caused by believing that government is inefficient at supply a given quality level of services (such as schooling, transportation, health care).

If public sector unions had less power, how much would the government cost of services decline by? Our JPUBE paper argues that the decline in costs would be very large.