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

61 Pages Posted: 9 Mar 2021 Last revised: 29 Jun 2022

See all articles by Darren Aiello

Darren Aiello

Brigham Young University

Asaf Bernstein

University of Colorado at Boulder; National Bureau of Economic Research (NBER)

Mahyar Kargar

University of Illinois at Urbana-Champaign - Department of Finance

Ryan Lewis

University of Colorado, Boulder

Michael Schwert

University of Pennsylvania - The Wharton School

Date Written: November 4, 2019

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

Suggested Citation

Aiello, Darren and Bernstein, Asaf and Kargar, Mahyar and Lewis, Ryan and Schwert, Michael, The Perceived Value of Pension Funding: Evidence from Border House Prices (November 4, 2019). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: https://ssrn.com/abstract=3757016 or http://dx.doi.org/10.2139/ssrn.3757016

Darren Aiello (Contact Author)

Brigham Young University ( email )

United States

HOME PAGE: http://darrenaiello.com

Asaf Bernstein

University of Colorado at Boulder ( email )

Campus Box 419
Boulder, CO 80309
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mahyar Kargar

University of Illinois at Urbana-Champaign - Department of Finance ( email )

Champaign, IL 61820
United States

HOME PAGE: http://mahyarkargar.com

Ryan Lewis

University of Colorado, Boulder ( email )

Boulder, CO 80309-0419
United States

Michael Schwert

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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