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Who’s Afraid of Good Governance? State Fiscal Crises, Public Pension Underfunding, and the Resistance to Governance Reform


States’ unfunded pension obligations to their current and retired employees have exploded in recent years to levels that are estimated to be between $750 billion and $4.4 trillion. In theory, this massive debt should have implications for states’ ability to meet their financial obligations and a measurable impact on funding costs. Yet we find limited evidence that municipal bond markets are pricing the risks to states’ fiscal health arising from these large obligations.

Keywords: Public pensions, governance, public pension reform.
JEL Codes: H55, H75, K31.


Suggested citation: Fitzpatrick, Thomas J. and Amy B. Monahan, 2012. "Who's Afraid of Good Governance? State Fiscal Crises, Public Pension Underfunding, and the Resistance to Governance Reform," Federal Reserve Bank of Cleveland, Working Paper no. 12-23.

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