The Perceived Value of Pension Funding: Evidence from Border House Prices

Abstract

We study the effect of state pension windfalls on property prices near state borders, where theory suggests real estate should reflect marginal residents' perceived value of additional public funds that relax the economic burden of substantial pension shortfalls. We find that one dollar of plausibly exogenous variation in pension asset returns increases border house prices by approximately two dollars. This implies that residents anticipate considerable value-enhancing public spending or reduced distortionary taxation driven by these windfalls. Our analysis of government expenditures suggests windfall-induced differences in the current provision of public goods plays a central role in our findings.

Keywords: Public finance, pensions, deadweight loss, real estate.

JEL Classification: R3, H41, H55, H74