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Do Public Pension Obligations Affect State Funding Costs?

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.

JEL Code: H75.

Keywords: State pensions, unfunded obligations, municipal bond markets.

Suggested citation: Burson, Jean, John Carlson, O. Emre Ergungor, and Patricia Waiwood, 2013. "Do Public Pension Obligations Affect State Funding Costs?" Federal Reserve Bank of Cleveland, Working Paper no. 13-01R.

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